Steps to Eliminate Private Mortgage Insurance (PMI)

Quick answer

• PMI protects your lender if you stop paying your mortgage.
• You can often remove PMI once your loan-to-value (LTV) ratio reaches 80%.
• Automatic termination occurs when your LTV hits 78% if you’re current on payments.
• You can request PMI cancellation when your LTV reaches 80% or lower.
• A home appraisal might be necessary to prove your home’s current value.
• Ensure you’re consistently making on-time mortgage payments.

What to check first (before you buy or change coverage)

Coverage needs

Before considering PMI removal, understand why it was required in the first place. PMI is typically mandated by lenders when your down payment is less than 20% of the home’s purchase price. This protects the lender from potential losses if you default on your loan. Knowing this helps you understand your current mortgage terms.

Deductibles and premiums

While PMI isn’t a deductible in the traditional sense, its cost is a monthly premium added to your mortgage payment. This premium varies based on your credit score, loan amount, and the lender’s risk assessment. Understanding the exact amount you’re paying for PMI is crucial for determining when and how to remove it, as it represents money you could potentially save.

Exclusions and limits (general)

PMI policies have specific conditions under which they apply. It’s important to be aware that PMI generally covers the lender’s loss, not your own equity in the home. There are typically no “limits” on the PMI itself in terms of coverage amount, as it’s tied to the outstanding loan balance. However, understanding any specific lender requirements or loan terms related to PMI is key.

Claim process

While you, as the homeowner, don’t directly file claims under a PMI policy, your lender does. If you were to default on your mortgage, the PMI company would compensate the lender for a portion of their loss. Knowing this highlights the importance of maintaining good standing with your mortgage payments to avoid any situation where PMI would be invoked.

Bundling and discounts (general)

PMI itself is not something you can typically “bundle” or get discounts on in the way you might with homeowner’s insurance. However, some lenders might offer slightly different PMI rates based on your overall relationship with them or other financial products you use. It’s always worth asking your lender if any such opportunities exist, though the primary focus should be on removing the PMI altogether.

Step-by-step (simple workflow)

Step 1: Determine your current loan-to-value (LTV) ratio.

• What to do: Calculate your current home’s market value and divide your outstanding mortgage balance by this value. For example, if your home is worth $300,000 and you owe $250,000, your LTV is approximately 83.3%.
• What “good” looks like: Your LTV is at or below 80%. This is the primary threshold for initiating PMI removal.
• A common mistake and how to avoid it: Relying solely on the original purchase price to estimate your home’s value. Home values fluctuate. To avoid this, research recent sales of comparable homes in your area or consult a real estate agent for an opinion of value.

Step 2: Check your mortgage terms for PMI cancellation policies.

• What to do: Review your original mortgage documents or contact your lender directly to understand their specific policies regarding PMI cancellation.
• What “good” looks like: You have a clear understanding of the lender’s requirements, including the LTV percentage needed, any required notice periods, and whether an appraisal is necessary.
• A common mistake and how to avoid it: Assuming all lenders have identical PMI removal policies. This can lead to incorrect expectations. Always verify with your specific lender.

Step 3: Ensure you are current on all mortgage payments.

• What to do: Make sure you have not missed any mortgage payments and are up-to-date on your escrow as well.
• What “good” looks like: A consistent history of on-time payments without any delinquencies.
• A common mistake and how to avoid it: Believing that a few late payments won’t matter. Lenders require a pristine payment history for PMI removal, so even a single recent delinquency can derail your request.

Step 4: Reach the 80% LTV threshold.

• What to do: Continue making mortgage payments. As you pay down the principal, your LTV will decrease. If your home’s value has also increased, this will further lower your LTV.
• What “good” looks like: Your LTV has dropped to 80% or below, either through principal reduction or an increase in your home’s value.
• A common mistake and how to avoid it: Not tracking your LTV. You might miss opportunities to request cancellation if you’re unaware of when you hit the 80% mark. Regularly check your mortgage balance and estimate your home’s value.

Step 5: Request PMI cancellation from your lender.

• What to do: Once you’ve confirmed your LTV is at or below 80%, formally request in writing that your PMI be canceled.
• What “good” looks like: You receive confirmation from your lender that your request has been received and is being processed.
• A common mistake and how to avoid it: Only making a verbal request. A written request provides a documented record of your communication and helps ensure your request isn’t lost or ignored.

Step 6: Obtain a home appraisal (if required).

• What to do: If your lender requires it, arrange for a professional appraisal of your home to determine its current market value.
• What “good” looks like: The appraisal comes back with a value that, when used to calculate your LTV, shows it’s at or below 80%.
• A common mistake and how to avoid it: Hiring an appraiser who is not on your lender’s approved list. This can result in the appraisal being rejected, costing you time and money. Always confirm with your lender which appraisers they accept.

Step 7: Confirm PMI cancellation and removal from payments.

• What to do: After your request is approved and any appraisal is completed, your lender should confirm in writing that PMI has been canceled. Your future mortgage statements should reflect the removal of the PMI premium.
• What “good” looks like: You receive official written confirmation and see a reduced monthly mortgage payment.
• A common mistake and how to avoid it: Assuming PMI is gone just because you requested it. Always wait for official written confirmation and verify your next few mortgage statements to ensure the charge has been removed.

Step 8: Understand automatic termination.

• What to do: Be aware that if you are current on your mortgage payments, your lender is required by federal law to automatically terminate PMI when your loan reaches 78% LTV based on the original amortization schedule.
• What “good” looks like: Your PMI is automatically removed from your payments without you needing to formally request it, typically around the midpoint of your loan term.
• A common mistake and how to avoid it: Not knowing about this automatic termination provision. You might go through the process of requesting cancellation when it would have happened on its own, or you might miss it if your LTV drops due to market appreciation.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not understanding LTV requirements	Continued PMI payments, overpaying by hundreds or thousands of dollars annually.	Calculate your LTV regularly and know the 80% and 78% thresholds.
Assuming original purchase price reflects current value	Underestimating your LTV and missing the opportunity to cancel PMI.	Get a current home valuation through research or an appraisal.
Failing to make on-time payments	Inability to cancel PMI, potential for loan default and foreclosure.	Prioritize mortgage payments and set up automatic payments if possible.
Not contacting the lender for their specific policy	Misunderstanding requirements, leading to a denied cancellation request.	Always review your loan documents or call your lender directly.
Relying on verbal requests for cancellation	Lack of proof, making it difficult to follow up or dispute if issues arise.	Submit all cancellation requests in writing and keep copies.
Using an unapproved appraiser	Appraisal rejection, wasted appraisal fees, and delays in cancellation.	Confirm with your lender which appraisers they will accept.
Not tracking your mortgage balance	Not knowing when you’ve paid down enough principal to reach LTV targets.	Monitor your mortgage statements and principal balance closely.
Ignoring automatic termination rules	Potentially requesting cancellation when it’s about to happen automatically, or missing the automatic removal.	Be aware of the federal requirement for automatic termination at 78% LTV.
Not verifying PMI removal on statements	Continuing to pay PMI after it should have been removed, losing money.	Carefully review your mortgage statements after your cancellation request is approved.

Decision rules (simple if/then)

• If your LTV is above 80% then continue making on-time mortgage payments because this is the primary way to reduce your loan balance and lower your LTV.
• If your LTV is at or below 80% then you can request PMI cancellation from your lender because this is the minimum threshold for voluntary cancellation.
• If your lender requires an appraisal then you must obtain one to prove your home’s current value because the lender needs independent verification.
• If your home’s market value has increased significantly then your LTV may have dropped below 80% even if your principal hasn’t decreased much because a higher home value lowers the LTV ratio.
• If you have a history of late payments then you will likely not be approved for PMI cancellation because lenders require a good payment history.
• If your LTV is at or below 78% and you are current on payments then your PMI should be automatically terminated by federal law because this is a mandatory requirement for lenders.
• If you are unsure about your LTV then you should calculate it by dividing your current mortgage balance by your home’s estimated current market value because this is essential for knowing when you can cancel PMI.
• If your lender denies your cancellation request then you should ask for the specific reason why because understanding the reason will help you address the issue and reapply later.
• If you are paying PMI and your home’s value has significantly decreased then it might be impossible to reach the 80% LTV threshold without paying down more principal because a declining market value can hinder your LTV reduction.
• If you wish to accelerate PMI removal then consider making extra principal payments on your mortgage because this will directly reduce your loan balance and lower your LTV faster.
• If you have PMI on an FHA loan then the rules are different and often PMI (called MIP) is not cancellable because FHA loans have different insurance structures.
• If you have a piggyback loan or a second mortgage, PMI rules may differ or not apply in the same way as a single primary mortgage because the structure of your financing can impact insurance requirements.

FAQ

What is PMI?

PMI stands for Private Mortgage Insurance. It’s an insurance policy that protects your mortgage lender if you default on your loan, typically required when your down payment is less than 20% of the home’s purchase price.

How much does PMI cost?

The cost of PMI varies, but it typically ranges from 0.5% to 1% of the original loan amount annually. This cost is usually paid as a monthly premium added to your mortgage payment.

When can I start thinking about removing PMI?

You can generally start considering PMI removal once your loan-to-value (LTV) ratio drops to 80%. This means the amount you owe on your mortgage is 80% or less of your home’s current market value.

Do I have to pay to get rid of PMI?

Yes, you may incur costs. Your lender might require a home appraisal, which can cost several hundred dollars. There might also be administrative fees associated with processing the cancellation.

What is the difference between 80% LTV and 78% LTV for PMI?

At 80% LTV, you can typically request to have PMI removed. At 78% LTV, federal law requires lenders to automatically terminate PMI if you are current on your payments.

Can my home’s value go down and affect my PMI cancellation?

Yes, if your home’s value decreases, your LTV ratio increases. This could prevent you from reaching the 80% or 78% LTV thresholds needed to cancel PMI.

What if my lender won’t cancel my PMI even if I meet the requirements?

If your lender is not following federal guidelines regarding PMI termination, you should consult the Consumer Financial Protection Bureau (CFPB) or seek advice from a housing counselor.

Does paying extra on my mortgage help remove PMI faster?

Yes, making extra principal payments will reduce your loan balance faster, which in turn lowers your LTV ratio. This can help you reach the 80% LTV threshold sooner.

What this page does NOT cover (and where to go next)

• Specific details on FHA loan mortgage insurance premiums (MIP) and their cancellation.
• The process of refinancing your mortgage to eliminate PMI.
• How to handle PMI if you have an investment property or a second home.
• Legal advice regarding disputes with your lender over PMI cancellation.