When Do You Stop Paying PMI on Your Mortgage?

When purchasing a home with a conventional loan, if your down payment is less than 20% of the home’s purchase price, you will typically be required to pay Private Mortgage Insurance (PMI). PMI protects the mortgage lender, not the homeowner, against potential losses if a borrower defaults on their loan. This requirement allows individuals to buy a home sooner without a substantial upfront payment, mitigating the increased risk for lenders. While PMI adds to your monthly mortgage expense, it is a temporary cost that can be eliminated under specific conditions.

Automatic PMI Termination

The Homeowners Protection Act (HPA) of 1998 establishes the conditions for automatic PMI termination on conventional loans. Under this federal law, your lender is required to cancel PMI once your mortgage’s principal balance reaches 78% of the original value of your home. This percentage is based on the loan’s initial amortization schedule, meaning it considers the original purchase price or appraised value at the time you acquired the home, whichever was lower.

The automatic termination occurs on the scheduled date, provided your mortgage payments are current. Even if the 78% loan-to-value (LTV) threshold is not met sooner, the HPA also mandates final PMI termination when your loan reaches the midpoint of its amortization schedule, such as 15 years into a 30-year mortgage, assuming payments are current. Your mortgage servicer is legally obligated to inform you when your PMI has been terminated.

Borrower-Requested PMI Cancellation

You can request the cancellation of Private Mortgage Insurance before its automatic termination date. This borrower-initiated cancellation is possible once your mortgage’s principal balance reaches 80% of the home’s original value. To initiate this process, you must submit a written request to your mortgage servicer.

Lenders require that you have a good payment history, meaning no payments 30 days late in the last 12 months and no payments 60 days late in the past 24 months. Your servicer may also require you to certify that there are no junior liens, such as a second mortgage, on the property. If you believe your property’s value has increased significantly, the servicer might require a new appraisal, at your expense, to confirm the current property value.

Other Ways to Eliminate PMI

Beyond automatic termination or borrower requests, other strategies can help eliminate Private Mortgage Insurance. One common method involves refinancing your existing mortgage. If you refinance into a new conventional loan and the new loan-to-value (LTV) ratio is 80% or less based on the new appraisal for the refinance, PMI will not be required on the new loan. This approach can be particularly beneficial if current interest rates are lower than your existing mortgage rate, potentially offering additional savings.

Another strategy involves making additional principal payments on your mortgage. By paying more than your scheduled monthly amount, you can accelerate the reduction of your loan balance. This allows you to reach the 80% LTV threshold for borrower-initiated cancellation or the 78% LTV threshold for automatic termination more quickly. Ensuring these extra payments are applied directly to the loan’s principal, rather than future interest or escrow, is important to maximize their impact on your equity.