When Does the PMI Drop Off Your Mortgage?

Private Mortgage Insurance (PMI) is a common feature of conventional mortgage loans when a homebuyer makes a down payment of less than 20% of the home’s purchase price. This insurance primarily protects the lender, not the borrower, against potential losses if the borrower defaults on the loan. PMI allows individuals to purchase a home sooner without needing a substantial down payment. Many homeowners seek to eliminate PMI payments to reduce their monthly housing expenses, as these premiums can range from 0.3% to 1.15% of the original loan amount annually.

Automatic Termination Thresholds

The Homeowners Protection Act (HPA) of 1998 provides clear guidelines for the automatic termination of PMI on conventional loans. For loans originated on or after July 29, 1999, PMI must automatically terminate once the loan’s principal balance is scheduled to reach 78% of the home’s original value. This calculation relies on the initial amortization schedule, meaning the termination is based on a predetermined date, assuming regular payments.

This automatic termination occurs without any action required from the homeowner, provided the mortgage payments are current on the scheduled termination date. The “original value” for this purpose is typically the lesser of the sales price or the appraised value at the time the loan was created. Additionally, 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) threshold has not yet been met, as long as payments are current.

For certain older loans closed before July 29, 1999, specific rules may apply, with some non-conforming loans terminating at 77% LTV of the original value. Mortgage servicers are required to provide borrowers with an annual written statement outlining their PMI cancellation and termination rights. This statement includes the projected date when PMI is scheduled to terminate automatically.

Borrower Initiated Cancellation

Homeowners can proactively request the cancellation of Private Mortgage Insurance before its automatic termination date. This borrower-initiated cancellation is generally permitted once the mortgage loan balance reaches 80% of the home’s original value. A borrower can accelerate reaching this 80% LTV threshold by making extra payments toward the principal balance of their mortgage.

To initiate the cancellation process, the homeowner must submit a written request to their loan servicer. The servicer may then require an appraisal to confirm the property’s current market value, especially if the request is based on increased home equity due to market appreciation or home improvements. The borrower typically pays for this appraisal, which can cost between $550 and $750.

The lender or servicer will also review several conditions to approve the request. While the Homeowners Protection Act sets minimum standards, individual lenders and loan investors may have additional specific requirements or forms that must be completed for a borrower-initiated cancellation.

Required Conditions for Removal

Regardless of whether PMI termination is automatic or borrower-initiated, certain conditions must be consistently met for its successful removal. A good payment history is paramount. Lenders typically define this as no payments being 60 days or more past due in the last 24 months, and no payments 30 days or more past due in the preceding 12 months. The borrower must also be current on their mortgage payments at the time of cancellation or termination.

Another condition is the absence of junior liens on the property. This means there should be no subordinate mortgages, such as a second mortgage or a home equity line of credit (HELOC), that could impact the lender’s risk exposure. The presence of junior liens can complicate LTV calculations and signal increased debt against the property, which could prevent PMI removal.

For borrower-initiated requests, especially those relying on increased property value, a professional appraisal is often required. This appraisal verifies the home’s current market value, which is then used to calculate the updated LTV. If the property’s value has declined below its original value, PMI cancellation may be denied even if the loan balance-to-original-value ratio is met.

Understanding Different Mortgage Insurance Types

The rules for Private Mortgage Insurance (PMI) termination apply primarily to conventional mortgage loans. It is important to distinguish PMI from other types of mortgage insurance associated with government-backed loans, as their cancellation rules differ significantly.

Loans insured by the Federal Housing Administration (FHA) require Mortgage Insurance Premium (MIP). Unlike PMI, FHA MIP has distinct cancellation criteria. For most FHA loans originated after June 3, 2013, MIP is generally required for the entire life of the loan unless the borrower made an original down payment of at least 10%, in which case MIP may be cancelled after 11 years. If the original down payment was less than 10%, MIP typically remains for the loan’s duration, often necessitating a refinance into a conventional loan to remove it.

Veterans Affairs (VA) loans, available to eligible service members, veterans, and their spouses, do not require PMI or ongoing mortgage insurance premiums. Instead, VA loans have a one-time VA funding fee, which can be paid upfront or rolled into the loan amount. Similarly, loans backed by the U.S. Department of Agriculture (USDA) also do not have PMI. Instead, USDA loans include an upfront guarantee fee and an annual fee, which are different from PMI and protect the lender. Understanding these distinctions is important for homeowners seeking to eliminate their mortgage insurance obligations.