How to Remove PMI Insurance From Your Mortgage

Private Mortgage Insurance (PMI) is a type of insurance required by lenders when a homeowner makes a down payment of less than 20% on a conventional mortgage loan. It protects the lender if a borrower defaults. While PMI makes homeownership more accessible by allowing lower upfront costs, it adds to the monthly mortgage payment. Many homeowners seek to remove PMI to reduce monthly housing expenses. Fortunately, PMI is not a permanent feature of a mortgage and can be removed under specific conditions once certain equity thresholds are met.

Conditions for PMI Removal

The ability to remove Private Mortgage Insurance is governed by the Homeowners Protection Act (HPA) of 1998, which set forth rules for loans originated on or after July 29, 1999. This federal law established provisions for both automatic termination and borrower-requested cancellation of PMI. Understanding these conditions is essential for homeowners aiming to eliminate this additional cost from their monthly mortgage obligations.

Automatic termination occurs when the principal balance of the mortgage loan is scheduled to reach 78% of the home’s original value. The “original value” is defined as the lesser of the purchase price or the appraised value at the time the loan was made. For this to take effect, the borrower must be current on their mortgage payments. The lender is required to cease collecting PMI premiums once this loan-to-value (LTV) ratio is achieved according to the original amortization schedule.

If the borrower is not current on payments at that point, PMI will be terminated on the first day of the month following the date they become current. The HPA also mandates a final termination of PMI by the first day of the month immediately following the midpoint of the loan’s amortization period, provided the borrower is current on payments.

Homeowners can also pursue borrower-requested cancellation, which allows for earlier removal of PMI. This option becomes available when the loan balance reaches 80% of the home’s original value, either through regular payments or by making additional principal payments. When requesting cancellation based on the current appraised value of the home, the LTV ratio must reach 80% or lower.

To qualify, specific criteria must be met beyond the LTV threshold. The borrower must have a good payment history: no payments 30 days or more late in the past 12 months, and no payments 60 days or more late in the past 24 months. There must also be no junior liens on the property, such as a second mortgage or a home equity line of credit. The property’s value must not have declined below its original value, which may require a new appraisal to confirm.

The Process of Requesting PMI Removal

Once a homeowner believes they meet the criteria for Private Mortgage Insurance (PMI) removal, initiating the process involves several distinct steps. The conditions for removal, such as specific loan-to-value ratios or payment history requirements, are prerequisites that must be satisfied before starting this process.

Contact your mortgage servicer to inquire about their PMI cancellation policy and requirements. Homeowners should reach out by phone or in writing. Each servicer may have slightly different internal procedures.

After confirming eligibility, submit a formal written request for PMI cancellation. This letter should state your intention to cancel PMI and include your loan number, property address, and contact details. Send the request via certified mail with a return receipt for proof of delivery.

In many cases, particularly for borrower-requested cancellations based on increased home value, the mortgage servicer will require a property appraisal. This appraisal confirms the current market value of the home, which is then used to calculate the updated loan-to-value (LTV) ratio. The homeowner bears the cost of this appraisal, which can range from $300 to $700. Some lenders might accept a less expensive broker price opinion or an automated valuation.

Upon receiving the written request and any necessary documentation, such as an appraisal report, the servicer will review the loan file to verify all cancellation requirements have been met. The review process takes a few weeks, with servicers providing a decision within 30 days. The servicer will notify the homeowner of their decision in writing. If the request is approved, PMI will be removed from future mortgage payments, leading to a reduction in the monthly payment amount. If the request is denied, the servicer is required to provide the reason for the denial.

Strategies to Expedite PMI Removal

Homeowners seeking to remove Private Mortgage Insurance (PMI) sooner than its automatic termination date have several proactive strategies available. These actions focus on accelerating the reduction of the loan-to-value (LTV) ratio, thereby reaching the necessary equity threshold more quickly. Implementing these strategies can result in savings by eliminating PMI premiums from monthly mortgage payments.

• Make Additional Principal Payments: Each extra payment directly reduces the outstanding loan balance, accelerating the decrease in the LTV ratio. Even small, consistent additional payments can significantly impact the principal balance over time, helping achieve the 80% LTV threshold more rapidly.

• Make Home Improvements: Significant renovations or upgrades can substantially boost the home’s appraised value. An increased home value directly contributes to a lower LTV ratio, potentially pushing it below the 80% threshold. A new appraisal would be necessary to confirm the updated market value.

• Obtain a New Appraisal: Obtain a new appraisal if property values in the local market have appreciated significantly. Even without major home improvements, a rise in real estate values can increase equity. This appraisal, costing between $300 and $700, provides an updated valuation demonstrating a sufficiently low LTV. Homeowners should consult with their mortgage servicer to determine if a new appraisal is a viable option.

• Refinance the Mortgage: If a homeowner qualifies for a new loan with an LTV of 80% or less, the new loan would not require PMI. This strategy is appealing if current interest rates are lower than the existing mortgage rate, as it can also lead to a reduced monthly payment. Evaluate all associated closing costs to ensure the financial benefits outweigh the upfront expenses.