When Can You Remove PMI From Your Mortgage?

Private Mortgage Insurance, commonly known as PMI, functions as a protection for mortgage lenders. It is typically required on conventional home loans when a borrower makes a down payment of less than 20% of the home’s purchase price. This insurance helps mitigate the lender’s risk in case the borrower defaults on the loan. While PMI adds to the monthly mortgage payment, it also enables individuals to achieve homeownership without needing a substantial upfront down payment.

Automatic PMI Termination

Federal law, specifically the Homeowners Protection Act (HPA), provides for the automatic termination of Private Mortgage Insurance. This act requires mortgage servicers to automatically cancel PMI when the principal balance of the mortgage reaches 78% of the property’s original value. The “original value” is generally defined as the lesser of the home’s sales price or its appraised value at the time the loan was originated.

For this automatic termination to occur, the borrower must be current on their mortgage payments. If payments are not current at the 78% loan-to-value (LTV) threshold, PMI will be terminated on the first day of the first month after the borrower becomes current. The HPA also stipulates that PMI must terminate by the midpoint of the loan’s amortization schedule, even if the 78% LTV has not been reached, provided the borrower is current on payments. Mortgage servicers are required to notify borrowers annually about their PMI cancellation rights and to inform them when automatic termination occurs.

Borrower-Initiated PMI Cancellation

Homeowners often have the option to request early cancellation of their Private Mortgage Insurance before it would automatically terminate. This borrower-initiated cancellation is typically permitted once the loan-to-value (LTV) ratio reaches 80% of the property’s original value. Achieving this 80% LTV can happen sooner than scheduled through additional principal payments or if the property’s market value has increased significantly since purchase.

To be eligible for a borrower-initiated cancellation, a mortgage borrower must generally demonstrate a good payment history. This typically means having no payments that were 30 days or more late within the most recent 12 months, and no payments that were 60 days or more late within the past 24 months. Lenders also often require that there are no subordinate liens on the property, such as a second mortgage or home equity line of credit, which could affect the equity position.

In situations where a borrower seeks cancellation based on an increase in the home’s current market value, the lender may require a new appraisal to confirm the property’s updated valuation. This appraisal verifies that the 80% LTV threshold has been met based on the higher current value. While an appraisal might incur a cost, typically ranging from $450 to $600 for a standard single-family home, it can be a worthwhile investment if it leads to the cessation of monthly PMI payments.

Requesting PMI Removal

Once a borrower believes they meet the eligibility criteria for PMI cancellation, the next step involves formally initiating the removal process with their mortgage servicer. The initial action is to contact the servicer, which can often be done via phone, written letter, or sometimes through an online portal. It is advisable to make a written request, clearly stating the desire to cancel PMI and requesting information on the servicer’s specific cancellation procedures.

The servicer will then outline the specific documentation or steps required. This often includes providing evidence of the property’s value, particularly if the request is based on appreciation. If a new appraisal is necessary, the servicer typically requires it to be conducted by an appraiser from their approved list, and the borrower is generally responsible for the appraisal fee. This appraisal provides an independent assessment of the home’s current market value, which the servicer uses to recalculate the loan-to-value ratio.

After receiving the request and all necessary documentation, including any required appraisal report, the mortgage servicer will review the information. The timeline for this review and a decision can vary, but servicers typically process such requests within 30 to 45 days. If the request is approved, PMI payments will cease, leading to a reduction in the borrower’s monthly mortgage payment. If the request is denied, the servicer is required to provide a written explanation of the grounds for denial, which may include reasons such as an insufficient LTV, a problematic payment history, or the presence of other liens. Understanding the reason for denial allows the borrower to address any issues and potentially reapply in the future.