If you bought a home with less than 20% down on a conventional loan, you are probably paying private mortgage insurance, or PMI. It can add a meaningful amount to your monthly payment, and it protects the lender, not you. The good news is that PMI is not permanent. Federal law gives most homeowners the right to cancel it, and there are several ways to remove PMI sooner than scheduled. This guide explains the rules and the practical steps.
What Is PMI and Why Do You Pay It?
PMI is insurance that reimburses a conventional mortgage lender for part of its loss if a borrower defaults. Lenders usually require it when the down payment is below 20% of the purchase price. Annual PMI costs often fall somewhere between about 0.3% and 1.5% of the original loan amount, depending largely on your credit score and down payment, and are usually paid monthly as part of your mortgage payment.
PMI is different from FHA mortgage insurance, which follows separate rules covered below.
The Homeowners Protection Act: Your Legal Rights
The Homeowners Protection Act of 1998 (HPA) sets federal rules for canceling PMI on most conventional mortgages for primary residences that closed on or after July 29, 1999.
Borrower-Requested Cancellation at 80%
You can ask your servicer in writing to cancel PMI when your principal balance is scheduled to reach, or actually reaches through extra payments, 80% of the home’s original value. Original value generally means the lower of the purchase price or the appraised value at the time you bought. To qualify, you typically must:
- Make the request in writing
- Have a good payment history, generally no payments 30 or more days late in the past year and none 60 or more days late in the past two years
- Be current on payments
- Show that the property value has not declined below the original value, which may require an appraisal
- Have no subordinate liens, such as a second mortgage or HELOC, in some cases
Automatic Termination at 78%
Your servicer must automatically end PMI on the date your balance is scheduled to reach 78% of the original value, provided you are current on payments. You do not have to ask.
Final Termination at the Midpoint
If PMI has not ended by other means, it must end the month after you reach the midpoint of your loan’s amortization schedule, for example after 15 years on a 30-year loan, as long as you are current.
Your servicer is required to give you a PMI disclosure at closing and an annual statement describing your cancellation rights. Check your annual escrow statement or your loan documents for the scheduled dates.
Ways to Remove PMI Faster
Make Extra Principal Payments
Paying extra toward principal moves you toward the 80% threshold sooner. Even modest additional payments each month can shave years off the PMI timeline. Make sure your servicer applies extra payments to principal.
Request a Reappraisal Based on Current Value
If home values in your area have risen or you have made improvements, your equity may already be higher than your balance suggests. Many conventional loan investors, such as Fannie Mae and Freddie Mac, allow PMI removal based on current value, but with stricter standards. Common guidelines include:
| Time since closing | Typical maximum LTV based on new value |
|---|---|
| 2 to 5 years | 75% |
| More than 5 years | 80% |
If the increase in value comes from substantial improvements, some investors allow an 80% threshold sooner. You usually pay for the appraisal, often several hundred dollars, and the servicer typically orders it. Call your servicer first to learn its exact requirements before paying for anything.
Make Home Improvements That Add Value
Projects such as adding a bedroom or bathroom, finishing a basement, or a major kitchen remodel can raise appraised value. Keep receipts and permits to document the work.
Refinance
If rates are favorable and your home has gained value, refinancing into a new conventional loan at 80% LTV or below eliminates PMI. Compare the refinance closing costs and new rate with the PMI savings; refinancing purely to drop PMI rarely makes sense if it means taking a higher rate.
Recast Your Mortgage
Some servicers offer a recast, in which you pay a lump sum toward principal and the lender recalculates your payment over the remaining term. Combined with a PMI cancellation request, this can lower both your principal-and-interest payment and eliminate PMI.
FHA Mortgage Insurance Is Different
FHA loans charge a mortgage insurance premium (MIP), not PMI, and the HPA cancellation rules do not apply. For most FHA loans originated since mid-2013, annual MIP lasts for the life of the loan if you put down less than 10%, and for 11 years if you put down 10% or more. The usual way to eliminate FHA mortgage insurance early is to refinance into a conventional loan once you have enough equity, typically 20%.
Lender-Paid Mortgage Insurance
Some loans use lender-paid mortgage insurance (LPMI), where the lender covers the insurance in exchange for a higher interest rate. Because the cost is built into the rate, LPMI cannot be canceled. The only way out is refinancing or paying off the loan.
Step-by-Step: How to Request PMI Cancellation
- Find your original value and current balance on your closing documents and latest statement.
- Divide your balance by the original value to estimate your LTV.
- Call your servicer or check its website for PMI removal requirements.
- Confirm your payment history meets the requirements.
- Submit a written cancellation request.
- Schedule the appraisal if the servicer requires one.
- Confirm in writing when PMI will stop and check your next statement.
Common Mistakes
- Assuming PMI drops automatically at 80%, when the automatic date is 78%
- Paying for an independent appraisal the servicer will not accept
- Forgetting that a late payment in the past year can delay cancellation
- Not checking whether a second mortgage affects eligibility
Calculating Your PMI Removal Date
Suppose you bought a home for $350,000 with 5% down, borrowing $332,500. Eighty percent of the original value is $280,000, so you can request cancellation once your balance falls to that amount. Seventy-eight percent is $273,000, the balance at which PMI must end automatically. An amortization schedule from your servicer or an online calculator shows the month you reach each figure on regular payments. Adding a fixed extra amount to principal each month moves both dates earlier, and the schedule can show you how much sooner.
If your home is now worth $450,000 and the loan is more than two years old, a current-value approach could matter even more. A balance of about $337,500 or lower would equal 75% of the new value, which may already qualify you for removal under many investor guidelines, years ahead of the original schedule.
Is It Worth Paying Off PMI Early?
Compare the cost of extra payments or an appraisal with the PMI you would save. If PMI costs $150 per month and an appraisal costs $500, removing PMI even a year early saves well over a thousand dollars. On the other hand, if you carry high-interest credit card debt or lack an emergency fund, those priorities may deserve your extra cash first.
Frequently Asked Questions
When does PMI automatically go away?
On most conventional loans for a primary residence, PMI must end automatically when your balance is scheduled to reach 78% of the home’s original value, provided you are current on payments.
Can I remove PMI based on my home’s increased value?
Often yes. Many servicers allow removal based on a new appraisal, usually requiring 75% LTV if the loan is two to five years old, or 80% after five years. Rules vary by investor.
Is PMI tax deductible?
The federal deduction for mortgage insurance premiums has expired and been extended several times in the past. Check current IRS guidance for the tax year you are filing.
Does PMI removal require an appraisal?
Not always. If you reach 80% based on original value through scheduled or extra payments, the servicer may still require evidence that the value has not declined. Removal based on current value almost always requires an appraisal.
Can I get a refund of PMI after cancellation?
When PMI is canceled or terminated, the servicer generally must return any unearned premiums within 45 days.
This article is for general informational purposes only and is not legal, medical, tax, or financial advice. Rules vary by state and change over time; confirm details with the relevant agency or a licensed professional.
