You can remove PMI, or private mortgage insurance, from your mortgage after you have established enough equity in your home. You will need at least 20% in equity. At that point, you can request to have it removed or wait for it to automatically drop off when you have 22% in equity.
Private mortgage insurance increases your mortgage payment, so the sooner you can have it removed, the better. Learn how PMI works and how to take steps to remove PMI from your mortgage.
Key Takeaways
- Private mortgage insurance (PMI) is typically required when your down payment is less than 20% of your new home’s value.
- PMI is automatically removed when your loan-to-value (LTV) ratio reaches 78%.
- You can request to have PMI removed from your loan when you reach 80% LTV in your home.
- You can achieve an 80% LTV ahead of schedule if your home’s value increases or if you make extra loan payments.
What Is Private Mortgage Insurance (PMI)?
Many mortgage borrowers make a down payment of 20% or more when they buy a home to improve their loan terms or to avoid the cost of mortgage insurance. Borrowers who put down a smaller amount will typically have to pay private mortgage insurance (PMI), which is a type of mortgage insurance required on many conventional loans with down payments of less than 20%. Private mortgage insurance is added to the monthly mortgage payment along with the principal, interest, and escrow payments.
Mortgage insurance increases your monthly mortgage payment. The cost of PMI varies depending on your credit score and loan-to-value ratio (LTV), but most borrowers can expect to pay between $30 and $70 for every $100,000 of their loan, according to Freddie Mac. A PMI expense doesn’t last the entire loan term, and there are ways to get rid of it ahead of schedule.
Note
The purpose of PMI is to protect the lender (not the borrower) from loss in case a borrower defaults on their payments. It’s required on loans with smaller down payments since these borrowers may be more likely to default.
Though many people believe a 20% down payment is required to buy a house, it’s actually quite common for borrowers to put down less and then pay PMI. In fact, according to the National Association of Realtors, the typical down payment in 2023 was 8% for first-time buyers and 19% for repeat buyers, meaning most people have PMI or a form of mortgage insurance on their loans.
When Is PMI Automatically Terminated?
PMI is intended to reduce a lender’s risk on loans where the borrower has less than 20% equity. If you have a conventional loan, you won’t have to pay PMI for your entire loan term. Instead, it automatically terminates once you’re scheduled to reach 78% LTV—that’s equal to 22% of equity for you—on your loan. However, you must be current on your loan payments.
When you close on your loan, your lender will provide you with a PMI disclosure that includes, among other things, the date on which your PMI will end, based on regular, on-time payments.
Additionally, your lender is legally required to terminate your PMI once you reach the midpoint of your loan term if it hasn’t already been terminated. For example, if you have a 30-year loan, your lender must cancel your PMI after 15 years of payments, even if you haven’t reached 78% LTV yet.
When Can I Request PMI Cancellation?
You don’t necessarily have to wait until you reach 78% LTV to have your PMI terminated. As we’ve mentioned, PMI is only required on loans with balances of 80% or lower LTV. Therefore, if you believe your loan has reached 80% LTV, you can request to have your PMI canceled before it automatically drops off.
First, you can request to have your PMI terminated once you’re scheduled to reach 80% LTV based on the date on your PMI disclosure form. However, you can also request to have it removed earlier if you believe you’ve reached 80% LTV earlier. This could be the case if:
- You’ve made extra payments
- Your home value has increased
If you request to have PMI canceled before the date you’re scheduled to reach 80% LTV, you may be required to provide an appraisal, which you will have to pay for. The appraisal helps your lender confirm that you have reached 80% LTV based on either your extra payments or your home’s increased value.
Free tools like ZIllow’s Zestimate can give you an idea of your home’s estimated value and help you decide whether it’s worth it to request to have your PMI removed. However, these tools are only estimates and are not an official appraisal of your home’s value.
Strategies to Speed the PMI Removal Process
If you’re currently paying PMI, you may be anxious to get rid of that added monthly cost. Aside from waiting for your lender to terminate PMI when you reach 78% LTV on your loan, there are a couple of ways you can speed up the PMI removal process.
Building Equity
You can request to have your PMI removed when you’re scheduled to reach 80% LTV, but you can also take steps to build equity and reach 80% LTV more quickly. One of the most effective ways to do that is to make extra principal payments on your mortgage. By paying down your loan more quickly than scheduled, you’ll reach 80% LTV faster than you would have by making your scheduled monthly payments.
Another way to build equity in your home more quickly is to increase your home’s value. There’s not much you can do to impact the current housing market’s influence, but you can make home improvements to add value.
Refinancing
If you have 80% equity in your home, you can get rid of PMI by refinancing your loan. A refinance loan works just like any other mortgage in that a loan with less than 80% LTV requires PMI. As long as you have at least 20% equity in your home, your new loan won’t include PMI.
Refinancing also has other benefits, including the ability to potentially lower your interest rate, lower your monthly payment, change your loan term, and more.
Refinancing your loan has its own costs, including closing costs. And depending on your loan interest rate and the current rate market, you could end up with a higher interest rate. Rather than refinancing solely to get rid of PMI, run the numbers to ensure it makes sense for your overall financial picture.
Considerations and Potential Challenges
As you’re preparing to have PMI removed from your mortgage, there are some considerations and potential challenges to be aware of.
First, know that each lender may have its own process to request to have your PMI canceled early. It’s important to understand your lender’s requirements and take the proper steps to increase the chances of having your request approved.
Next, remember that for your PMI to be canceled, either automatically when you reach 78% LTV or at your request when you reach 80% LTV, you must be current on your mortgage payments. If you’re behind on your payments or have recently missed payments, you may not be able to have your PMI terminated.
Additionally, know that some factors related to your LTV are outside of your control. You can request to have your PMI removed before you’re scheduled to reach 80% LTV if you’ve made extra payments on your loan or your home value has increased. However, it’s also possible that your home’s value could decrease. Even if you’ve made extra payments, if an appraisal shows that your home value has declined, your request to have PMI terminated could be denied.
Finally, be aware of the potential costs you could face when having PMI removed. If you wait to have your PMI terminated at 78% LTV, there’s no added cost for you. However, if you request to have it removed early, your lender could require you to pay for an appraisal. Depending on your monthly PMI amount, the cost of an appraisal, and the amount of time before you’re scheduled to reach 78% LTV, it could actually be cheaper to let PMI automatically terminate on its own.
Can I Remove PMI Without Refinancing?
Although refinancing is one way to remove PMI if you’ve reached 80% LTV on your mortgage, it’s also possible to remove it without refinancing. You can either request to have your lender cancel PMI early or wait for it to automatically terminate when you’ve reached 78% LTV.
How Much Does It Cost to Remove PMI?
The cost to remove PMI depends on the method you use. If you wait until you reach 78% LTV, there’s no cost to have PMI removed. However, if you request to have PMI removed early or refinance to remove PMI, you may have to pay for an appraisal or closing costs.
Can a Lender Refuse to Remove PMI?
A lender can refuse to terminate PMI in some situations. A lender legally must remove PMI when you reach 78% equity, but only if you’re current on your loan payments. Your lender could refuse to remove PMI at 78% PMI if you’re behind on your loan payments, or if you request to have it removed early but haven’t reached 80% LTV.
Can PMI Be Removed on an FHA Loan?
Technically, FHA loans don’t have PMI. Instead, they have a similar type of mortgage insurance called a mortgage insurance premium (MIP). Borrowers pay both an upfront MIP and an annual MIP. Your annual MIP will last either 11 years or your entire loan term, depending on your home value and your LTV when you buy the home. Unlike with PMI, you can’t request to have it removed early (or in some cases, at all).
The Bottom Line
Having PMI on your mortgage has both pros and cons. It allows you to buy a home earlier than you otherwise would have, but it can also add hundreds of dollars to your loan payment.
The good news is it’s possible to get rid of PMI. While many borrowers choose to wait until PMI is automatically terminated per their mortgage contract, you can take steps, such as making extra payments on your loan, to have it removed early. Just make sure the potential added costs of removing PMI early make sense for you and don’t outweigh the amount you’ll save.
