How to Remove PMI From Your Mortgage Loan

Private Mortgage Insurance, commonly known as PMI, serves as a safeguard for mortgage lenders. This type of insurance is required when a homebuyer makes a down payment of less than 20% of the home’s purchase price on a conventional loan. The primary purpose of PMI is to reduce the risk for lenders, providing them protection in the event a borrower defaults on their mortgage payments. While PMI protects the lender, it is an additional cost for the homeowner, added to the monthly mortgage payment.

Eligibility for PMI Removal

Homeowners can remove PMI once they have built sufficient equity in their property. A common threshold for borrower-requested cancellation is when the loan-to-value (LTV) ratio reaches 80% of the home’s original value. The “original value” is defined as the lesser of the sales price or the appraised value at loan origination. For refinanced loans, it is the appraised value at refinancing.

A consistent record of on-time mortgage payments is another important condition for PMI removal. Lenders require a good payment history, meaning no payments 30 days or more past due within the last 12 months, and no payments 60 days or more past due within the last 24 months. If a homeowner has made additional principal payments, they may reach the 80% LTV threshold sooner, enabling an earlier cancellation request.

An increase in property value, through market appreciation or significant home improvements, can also help reach the necessary equity. If property values have risen, homeowners may request a new professional appraisal to confirm the current market value of their home. This appraisal helps demonstrate the LTV ratio has fallen below the required threshold, even if the loan balance has not yet reached 80% of the original value through regular payments. Some lenders may require the loan to be a certain age before accepting a new appraisal based on current market value for PMI removal.

Requesting Lender-Initiated PMI Cancellation

Once a homeowner believes they meet the eligibility criteria, they can request PMI cancellation from their mortgage servicer. The first step involves contacting the servicer to understand their process and requirements for PMI removal. Many servicers require the request to be submitted in writing.

The servicer will require documentation to verify eligibility. This includes proof of a good payment history. If the request is based on increased property value, a recent professional appraisal will be necessary to establish the current market value of the home. The cost of this appraisal is the responsibility of the homeowner.

After receiving the request and all required documentation, the lender will review the information. The review period can vary, but once approved, PMI will be removed from mortgage payments. Homeowners should confirm with their servicer that no additional liens, such as a second mortgage or home equity line of credit, exist on the property, as these can affect eligibility.

Automatic PMI Termination

Federal law, the Homeowners Protection Act (HPA), mandates automatic PMI termination under certain conditions. For conventional loans closed on or after July 29, 1999, PMI must automatically terminate when the loan balance is scheduled to reach 78% of the property’s original value. This occurs based on the loan’s original amortization schedule, regardless of additional payments.

The HPA also mandates automatic termination at the midpoint of the loan’s amortization period. For example, on a 30-year mortgage, PMI must terminate after 15 years, provided the borrower is current on their payments. This applies even if the 78% LTV threshold has not been met.

Lenders are obligated to inform borrowers about their rights regarding PMI cancellation and automatic termination. Borrowers receive a PMI disclosure form at loan closing, outlining the date PMI is scheduled to terminate automatically. Borrowers must maintain a good payment history, as PMI termination, whether automatic or requested, requires the loan to be current.

PMI on FHA Loans

Federal Housing Administration (FHA) loans use Mortgage Insurance Premium (MIP), which has distinct rules compared to conventional PMI. FHA loans require both an upfront MIP (UFMIP) and an annual MIP paid monthly. Unlike conventional PMI, MIP is required on all FHA loans, regardless of down payment.

The rules for MIP removal depend on the FHA loan’s origination date. For FHA loans originated before June 3, 2013, annual MIP can be removed once the loan-to-value (LTV) ratio reaches 78% or after 11 years, provided the borrower has a good payment history. Rules are more restrictive for FHA loans originated on or after June 3, 2013.

If the initial down payment on a post-June 3, 2013 FHA loan was less than 10%, the MIP is required for the entire life of the loan. If the down payment was 10% or more, MIP may be removed after 11 years with consistent on-time payments. For many FHA borrowers, refinancing into a conventional loan is the most effective way to eliminate mortgage insurance payments. This option requires the homeowner to have at least 20% equity in their home to avoid PMI.