On a conventional loan federal law ends it automatically when the scheduled balance first reaches 78 percent of the home's original value, and the borrower may request cancellation at 80 percent; FHA, VA and USDA loans are outside that rule, and on most FHA loans the premium is written to run for the full term.
Mortgage insurance protects the lender rather than the owner paying for it, which is why the rules for ending it were written into federal law instead of left to the servicer. There are two sets of rules. A conventional loan with private mortgage insurance runs on a statute with three dates in it, all knowable at closing. An FHA loan does not, and on most FHA loans the premium is not scheduled to end at all.
The three dates the federal rule sets
The Homeowners Protection Act, at 12 U.S.C. 4901 and following, governs private mortgage insurance on a conventional loan secured by a principal residence closed after July 1999. It sets three points at which the premium stops, and only one asks the borrower to do anything.
- Cancellation at 80 percent. Once the balance reaches 80 percent of original value the borrower may request cancellation in writing. The holder may condition it on a good payment history, evidence that the value has not fallen, and no second lien.
- Automatic termination at 78 percent. When the balance is first scheduled to reach 78 percent of original value the servicer must end the premium on its own, with no request and no appraisal, so long as the loan is current. If it is not, termination moves to the month after it becomes current.
- Final termination at the midpoint. Whatever the balance says, the premium may not be charged past the first day of the month following the midpoint of the amortization period, on a loan that is current. On a 30-year loan that is month 181.
Original value is fixed, and that is the whole trick
Original value is the lesser of the sale price and the appraised value at the time the loan closed, and it does not move. A house that gains 30 percent in three years does not shift the 78 percent date by a single day, because the schedule the servicer reads was printed at closing.
Which makes the date arithmetic rather than a judgment: run the schedule at the note rate and find the month the balance first drops below 78 percent of that figure. Paying extra principal moves the actual balance but not the scheduled one, so a borrower who pays ahead reaches 80 percent early and has to ask.
A $400,000 house with ten percent down
Take a $400,000 purchase with 10 percent down: a $360,000 loan at 90 percent of original value, 6.5 percent over 30 years, the calculator's default rate. Principal and interest are about $2,275 a month, and at the calculator's default premium of 0.6 percent of the loan a year the insurance adds $180.
On that schedule the balance first falls below $320,000, the 80 percent mark, in month 95, which is seven years and eleven months in. It first falls below $312,000, the 78 percent mark, in month 109: nine years and one month. Waiting for the automatic date instead of requesting cancellation at 80 percent is fourteen more payments of $180, roughly $2,500. Neither date moves with the market; a larger down payment starts the schedule lower.
FHA, VA and USDA each run on their own rules
None of the above reaches a government loan. FHA's premium works differently: it is paid to HUD rather than a private insurer, charged both upfront and annually, and on a loan that started above 90 percent of value it runs for the term rather than ending at a loan-to-value figure. There is no cancellation date to wait for, which is why the exit is a refinance.
A VA loan carries no mortgage insurance at all, at any down payment including zero. It carries a one-time funding fee instead, set by the down payment and by first or later use, with an exemption for veterans receiving compensation for a service-connected disability. Check the table at va.gov.
A USDA guaranteed loan has an upfront guarantee fee and a small annual fee, in recent years 0.35 percent of the average scheduled balance, charged for the life of the loan. USDA sets both each fiscal year.
Questions people ask
Does PMI go away automatically?
On a conventional loan, yes: the servicer has to end it when the scheduled balance first reaches 78 percent of original value and the loan is current, with no request from the borrower. On an FHA loan that started above 90 percent of value there is no automatic end.
Can you get mortgage insurance removed early?
You can ask once the balance reaches 80 percent of original value, and many servicers will also consider a request based on a current appraisal after appreciation or extra principal. That second route is the investor's rules rather than the statute, and the servicer can decline.
Does refinancing get rid of mortgage insurance?
It can, where the new loan is at or below 80 percent of the home's current appraised value, because the new lender writes a loan that needs no insurance. That is the usual way out of an FHA premium set to run for the term, and it means a new rate and new closing costs.