When Does PMI Get Removed From Your Mortgage?

Private Mortgage Insurance (PMI) is a type of insurance lenders require when a borrower makes a down payment of less than 20% on a conventional home loan. This insurance protects the lender against financial loss if the borrower defaults on the mortgage. PMI adds to the monthly mortgage payment, but it is not a permanent fixture. Understanding how and when PMI can be removed helps homeowners manage their loan expenses effectively.

Automatic PMI Removal

The Homeowners Protection Act (HPA) provides guidelines for the automatic termination of Private Mortgage Insurance. Under this federal law, lenders are required to cancel PMI when the loan balance reaches 78% of the home’s original value. This value is based on the original appraised value or sales price, whichever was lower at loan origination, using the initial amortization schedule. For this automatic termination, the borrower must be current on mortgage payments.

Another provision for automatic removal under the HPA is the midpoint of the loan’s amortization schedule. For a 30-year mortgage, PMI must be terminated after 15 years, regardless of the loan-to-value (LTV) ratio, provided the borrower is current on payments. The mortgage servicer must notify the borrower about this automatic termination and cease collecting PMI premiums within 30 days of the termination date. Any unearned premiums collected must be returned to the borrower within 45 days.

Borrower-Requested PMI Removal

Homeowners can request PMI cancellation earlier than its automatic termination date if they meet certain criteria. A condition is that the loan-to-value (LTV) ratio reaches 80% of the home’s original value. The “original value” is the lesser of the sales price or appraised value at loan origination, or the appraised value if the loan was a refinance. This equity can be achieved through consistent on-time payments, additional principal payments, or an increase in the property’s market value.

A good payment history is also a requirement for borrower-requested PMI removal. This means no payments were 30 days or more past due in the last 12 months, and no payments were 60 days or more past due in the past 24 months. Lenders also require certification that there are no junior liens on the property, such as a second mortgage or home equity loan. Additionally, the property’s value must not have significantly declined since the loan was originated. If property appreciation is a factor in reaching 80% LTV, the lender may require a new appraisal to verify the current market value, which the borrower typically pays for.

PMI Removal Process

To request PMI removal, homeowners must initiate the cancellation process with their loan servicer. The request must be submitted in writing, formally informing the servicer of the homeowner’s intent to cancel PMI and providing a record. The servicer’s contact information for such requests is usually found on monthly statements or can be obtained by contacting their customer service department.

The homeowner may need to provide documentation. If the request is based on the property’s increased market value, a current appraisal will be required to confirm the updated value. The loan servicer typically orders this appraisal, though the borrower bears the cost, which can range from $300 to $750. The servicer will review the submitted information and may conduct a property inspection or order a broker price opinion (BPO) to validate the home’s value.

Upon review, the servicer will notify the homeowner of their decision. If approved, PMI payments should cease within 30 days of the cancellation date. If the request is denied, the servicer must provide the reasons for the denial. Homeowners should track their loan balance and payment history to determine the optimal time to request PMI removal, potentially saving a significant amount over the loan’s life.