Ask the servicer in writing to cancel it once the balance reaches 80 percent of the home's original value, or 80 percent of a new appraised value after two years of ownership; by law it ends automatically at 78 percent of the original value, and FHA mortgage insurance is a different thing that usually needs a refinance to remove.
Private mortgage insurance exists because you put down less than 20 percent, and it is meant to end when the lender's exposure falls to that level. The Homeowners Protection Act sets the rules for cancelling it, the servicer will not volunteer them, and in a market where prices have risen the appraisal route can end it years before the schedule would.
The three routes
- Automatic termination: the servicer must cancel PMI when the balance is scheduled to reach 78 percent of the original value (the lower of the purchase price and the appraisal at origination), provided you are current. On a 30-year loan with five percent down that is about ten years in.
- Borrower-requested cancellation at 80 percent of original value: you can request it the month the balance reaches 80 percent on the amortization schedule, or earlier if you have paid extra principal to get there. The servicer may require a good payment history and no second lien, and may ask for evidence the value has not fallen.
- Cancellation on current value: after two years, most conventional loans allow cancellation at 80 percent loan-to-value on a new appraisal you pay for ($400 to $600); between two and five years some investors require 75 percent; after five years, 80 percent. Improvements that added value count. This is the route that ends PMI early in a rising market.
The arithmetic of asking early
PMI runs about 0.3 to 1.5 percent of the loan balance a year, so on a $360,000 loan it is roughly $100 to $400 a month. An appraisal that ends it two years early pays for itself in the first two to five months. A home bought at $380,000 with five percent down that is now worth $460,000 is at about 77 percent loan-to-value on the current figure, and the borrower can request cancellation the day the two-year mark passes. Check the current value against recent sales first so the appraisal fee is not spent on a number that will not clear.
FHA is different
FHA loans carry a mortgage insurance premium that is not governed by the same law. For loans made since June 2013 with less than ten percent down, the annual premium lasts the life of the loan; with ten percent or more down, eleven years. The way to remove it is to refinance into a conventional loan once the equity is 20 percent, which is worth doing when the conventional rate is close to the FHA one. VA loans have no monthly insurance; USDA loans have a small annual fee that does not cancel.
Questions people ask
When does PMI go away automatically?
When the loan balance is scheduled to reach 78 percent of the original value and the loan is current, under the Homeowners Protection Act. You can request cancellation earlier, at 80 percent, and on a new appraisal after two years.
Can I remove PMI without refinancing?
Yes, on a conventional loan: request cancellation when the balance reaches 80 percent of the original value, or order an appraisal after two years showing 80 percent loan-to-value on the current value. FHA mortgage insurance generally requires a refinance.
How much does PMI cost per month?
About 0.3 to 1.5 percent of the loan balance a year, set by credit score and down payment. On a $300,000 loan that is roughly $75 to $375 a month.