When Can You Take PMI Off Your Mortgage?

Private Mortgage Insurance (PMI) is typically required with a conventional mortgage when a homebuyer makes a down payment of less than 20% of the home’s value. PMI primarily protects the lender, not the borrower, against financial loss if the borrower defaults on their mortgage payments. While PMI adds to the monthly mortgage payment, it enables individuals to purchase a home without needing a substantial down payment. Understanding PMI removal can help homeowners reduce monthly housing expenses.

Automatic PMI Termination

The Homeowners Protection Act (HPA) of 1998 established rules for automatic PMI termination on certain home mortgages. PMI must be automatically cancelled by the mortgage servicer when the loan’s principal balance is scheduled to reach 78% of the home’s original value. This calculation is based on the initial amortization schedule, assuming regular, on-time payments.

For automatic termination, the homeowner must be current on mortgage payments. If not current at the scheduled date, PMI terminates once the borrower becomes current. Mortgage servicers must notify borrowers annually about their PMI cancellation rights and scheduled termination.

PMI must also terminate by the first day of the month following the midpoint of the loan’s amortization period, even if the 78% loan-to-value (LTV) ratio has not been reached, provided the borrower is current. This serves as a final safeguard for PMI removal.

Borrower-Initiated PMI Cancellation

Homeowners can proactively request PMI cancellation before it automatically terminates. Cancellation can be requested once your loan balance reaches 80% of the home’s original value. This “original value” is the lesser of the contract sales price or the appraised value at purchase.

To qualify for borrower-initiated cancellation, a good payment history is required: no payments 30 days or more past due in the last 12 months, and no payments 60 days or more past due in the last 24 months. The property must also be free of junior liens, such as a second mortgage or home equity loan.

If the home’s value has increased significantly due to market appreciation or substantial home improvements, cancellation can be requested based on the current appraised value, even if the loan balance has not reached 80% of the original value. Significant improvements add value and extend the property’s useful life, beyond just maintenance. In such cases, a new appraisal, often at the borrower’s expense, is required to confirm the updated loan-to-value ratio.

Requesting PMI Cancellation

Contact your mortgage servicer to understand their specific requirements and procedures for PMI removal. Their contact information is usually on your monthly mortgage statement.

Submit a written request for PMI cancellation. Include any necessary supporting documentation, such as proof of substantial home improvements if relying on increased property value. The servicer will then guide you on whether a new appraisal is needed to verify the home’s current value.

If an appraisal is required, the servicer typically orders it, not the homeowner. The borrower usually bears the cost, which can range from $300 to $700. After reviewing your request and appraisal results, the servicer determines if you meet cancellation criteria and notifies you of their decision.

Situations Where PMI Removal May Differ

While the Homeowners Protection Act governs most conventional mortgages, certain loan types or circumstances have different mortgage insurance removal rules.

Federal Housing Administration (FHA) loans require Mortgage Insurance Premiums (MIP) instead of PMI. For FHA loans originated on or after June 3, 2013, if the down payment was less than 10%, 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.

Veterans Affairs (VA) loans do not require PMI or MIP. Instead, VA loans include a one-time VA funding fee, ranging from 0.5% to 3.3% of the loan amount, which can often be rolled into the loan. Certain veterans, such as those receiving VA disability compensation, may be exempt from this fee.

Even if LTV thresholds are met, a mortgage servicer may deny a PMI cancellation request if the loan is considered “high-risk” due to factors like a history of late payments or additional liens. A loan modification can also reset loan terms and affect PMI removal.