When Can Private Mortgage Insurance Be Removed?

Private Mortgage Insurance (PMI) serves as a financial safeguard for mortgage lenders. This insurance is typically required when a homebuyer secures a conventional mortgage with a down payment less than 20% of the home’s purchase price. While the borrower pays the premiums, PMI primarily mitigates the risk for the lender in case of loan default. It enables individuals to purchase a home with a smaller upfront investment by offsetting the increased risk associated with a higher loan-to-value (LTV) ratio.

Automatic Termination of PMI

The Homeowners Protection Act (HPA) of 1998 established specific conditions under which a mortgage lender is legally obligated to automatically terminate Private Mortgage Insurance. This federal law applies to privately insured first mortgages on single-family primary residences, provided the loans closed on or after July 29, 1999. Lenders must automatically cancel PMI when the principal balance of the mortgage is scheduled to reach 78% of the original value of the home. This original value is defined as the lesser of the sales price or the appraised value at the time the loan was originated.

Another automatic termination point occurs when the loan reaches the midpoint of its amortization schedule. Even if the 78% LTV threshold has not yet been met, PMI must be terminated at this halfway point, provided the borrower is current on their mortgage payments. If payments are not current on the scheduled termination date, PMI will be terminated on the first day of the first month following the date the borrower becomes current. Lenders are also required to notify borrowers about their PMI cancellation rights and the actual termination.

Borrower-Initiated PMI Cancellation

Homeowners can proactively request the cancellation of Private Mortgage Insurance before it automatically terminates. This typically becomes an option once the loan-to-value (LTV) ratio reaches 80% of the home’s original value. This allows borrowers to achieve PMI removal sooner by making additional principal payments to reach the 80% LTV threshold.

Several conditions must generally be met for a borrower-initiated cancellation. A good payment history is usually required, meaning no payments 30 days or more past due in the preceding 12 months, and no payments 60 days or more past due in the last 24 months. The property should also be free of subordinate liens, such as second mortgages or home equity lines of credit, that would push the combined LTV above acceptable limits. Lenders may require a new appraisal to confirm the current market value of the home, especially if the request is based on property appreciation. The cost of this appraisal is typically borne by the borrower.

Certain loan types, such as FHA loans, have different rules for mortgage insurance. FHA loans include a Mortgage Insurance Premium (MIP), which often remains for the entire loan term if the down payment was less than 10% for loans originated on or after June 3, 2013. To remove MIP from an FHA loan in such cases, refinancing into a conventional loan is often the primary option once sufficient equity is established.

The PMI Removal Process

To remove Private Mortgage Insurance, homeowners should follow several steps. First, contact your mortgage loan servicer to inquire about their specific PMI cancellation policies and requirements. The servicer can provide details on the necessary documentation and process. Borrowers should be prepared to submit a formal written request for PMI cancellation. If an appraisal is required to verify the current home value, the borrower must arrange for a lender-approved appraiser and cover the cost. This appraisal must be ordered through the servicer’s designated channels.

Once all required documentation and, if applicable, the appraisal report are ready, the complete request package should be formally submitted to the servicer. Borrowers should retain copies of all submitted documents for their records. Following submission, it is prudent to follow up with the servicer to track the status of the request and address any further inquiries. Upon approval, PMI payments will cease, resulting in a lower monthly mortgage payment for the homeowner.