How to Get PMI Removed From Your Mortgage

Private Mortgage Insurance (PMI) protects lenders if a mortgage loan defaults. It is typically required for conventional mortgages when the borrower makes a down payment of less than 20% of the home’s purchase price. PMI adds an additional cost to the borrower’s monthly mortgage payment. This article explains how homeowners can eliminate this expense.

Understanding PMI Removal Eligibility

Homeowners can often remove Private Mortgage Insurance (PMI) once they have built sufficient equity in their homes. The Homeowners Protection Act (HPA) outlines specific conditions under which PMI can be terminated. Under this federal law, there are two primary ways PMI removal occurs: automatic termination and borrower-initiated cancellation.

Automatic termination of PMI occurs when the loan-to-value (LTV) ratio reaches 78% of the home’s original value, based on the initial amortization schedule. The original value is typically the lesser of the sales price or the appraised value at the time of purchase. PMI also automatically terminates when the loan reaches the midpoint of its amortization schedule, such as 15 years into a 30-year mortgage, provided the borrower is current on payments.

Borrower-initiated cancellation allows homeowners to request PMI removal sooner, typically when their LTV ratio reaches 80% of the home’s original value. To qualify for this, the borrower must submit a written request to their loan servicer. A good payment history is also required, generally meaning no payments 30 days late in the past 12 months and no 60-day late payments in the past 24 months. Additionally, the property should not have any junior liens, such as a second mortgage or home equity line of credit.

Lender-Paid Mortgage Insurance (LPMI) operates differently and cannot be removed directly. With LPMI, the lender pays the premium upfront, and the cost is incorporated into a slightly higher interest rate for the life of the loan. To eliminate LPMI, refinancing the mortgage is generally the only option.

Steps to Request PMI Removal

Initiating the PMI removal process begins with contacting your mortgage loan servicer to understand their specific requirements. While federal law sets general guidelines, servicers may have particular forms or documentation they require.

After contacting your servicer, you will need to gather various documents to support your request. This typically includes proof of a good payment history. You will also need to certify that there are no other liens on your property, such as a second mortgage or home equity loan.

A home appraisal is often necessary, especially if you are requesting cancellation based on an increase in your home’s current market value or if you’ve made significant improvements. The appraisal verifies the property’s current value, which is then used to calculate your loan-to-value (LTV) ratio. The cost for a standard single-family home appraisal typically ranges from $450 to $600, paid by the homeowner. Some lenders may require you to use an appraiser from their approved list, so it is advisable to confirm this with your servicer before proceeding.

Once all required documentation, including a current appraisal if needed, is collected, you must submit a formal written request to your loan servicer. This request should clearly state your intention to cancel PMI and include all supporting evidence. After submission, it is important to follow up with your servicer to track the processing of your request. While processing times can vary, it typically takes a few weeks to a couple of months for the removal to be confirmed. You should then verify that PMI charges have been successfully removed from your subsequent mortgage statements.

Alternative Strategies for PMI Elimination

Beyond direct cancellation based on equity, other financial strategies can help eliminate Private Mortgage Insurance (PMI). Refinancing your mortgage is a common approach, especially if current interest rates are favorable. If your new loan-to-value (LTV) ratio is 80% or less, the new loan will not require PMI. However, refinancing involves closing costs, which can range from 2% to 5% of the loan amount. Weigh these expenses against the savings from eliminating PMI.

Making extra principal payments on your mortgage can also accelerate PMI removal. By consistently paying more than your scheduled monthly principal and interest, you reduce your loan balance faster. This strategy helps you reach the necessary LTV threshold of 80% (for borrower-initiated cancellation) or 78% (for automatic termination) sooner. Even small, consistent additional payments can significantly impact the timeline for building equity and eliminating PMI.

Another option, offered by some lenders, is loan recasting. This involves making a substantial lump-sum payment towards your principal balance. After this payment, the lender re-amortizes your remaining loan balance over the original loan term, resulting in lower monthly payments. While recasting does not change your interest rate or loan term, it can reduce your principal balance enough to reach the LTV required for PMI removal, without the full expense of a refinance.