When Can I Take PMI Off My Mortgage?

Private Mortgage Insurance (PMI) is required with a conventional home loan when the down payment is less than 20% of the home’s value. This insurance protects the lender against potential losses if the borrower defaults, mitigating the increased risk of a smaller down payment. While PMI adds to the monthly mortgage payment, it allows individuals to purchase a home sooner without a substantial initial investment.

When PMI Automatically Ends

The Homeowners Protection Act (HPA) of 1998 mandates the automatic termination of PMI under specific conditions. For most conventional loans, lenders must cancel PMI once the loan’s principal balance is scheduled to reach 78% of the home’s original value. This calculation is based on the original amortization schedule, regardless of any extra payments made. Automatic termination occurs on this date, provided the mortgage payments are current. If the loan is not current, PMI terminates shortly after payments are brought up to date.

When You Can Request PMI Removal

Borrowers can request PMI cancellation earlier than the automatic termination date. This can be done once the principal balance reaches 80% of the home’s original value. The “original value” is the lesser of the contract sales price or the appraised value at purchase, or the appraised value if refinanced. To qualify, borrowers must have a good payment history, meaning no 30-day late payments in the last 12 months and no 60-day late payments in the last 24 months. The property must also be the borrower’s primary residence, with no junior liens that would increase the overall loan-to-value ratio.

Steps to Remove PMI

To initiate PMI removal, homeowners should first gather essential information, including their loan account number and payment history. The next step involves formally contacting the loan servicer or lender to submit a request for PMI cancellation. This request typically needs to be in writing, though some lenders offer online forms.

As part of the review, the lender might require a new home appraisal to verify the current market value, especially if the request is based on appreciation or improvements. The appraisal cost, ranging from $400 to $700, is generally the borrower’s responsibility. After the request and any required appraisal are submitted, the lender will review the documentation and notify the borrower of their decision.

Alternative Strategies for PMI Removal

Homeowners have other avenues to eliminate PMI. Refinancing the mortgage is a common strategy, especially if interest rates are more favorable or the home’s value has significantly increased. A new loan with a loan-to-value (LTV) ratio of 80% or less will typically not require PMI. Another effective method is to make extra principal payments. By accelerating the reduction of the loan balance, homeowners can reach the 80% LTV threshold for borrower-initiated cancellation or the 78% LTV for automatic termination sooner. This proactive approach can lead to earlier PMI removal and notable savings.