How to Get Rid of Private Mortgage Insurance (2024)

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Private Mortgage Insurance

You may be required to have private mortgage insurance if you are putting down less than 20% as a downpayment. If you’ve bought a home without putting 20% down, your lender will probably need you to pay private mortgage insurance or PMI, each month. This is going to be a significant extra expense on top of your home loan payments.

The good news is that you can remove these private mortgage insurance payments and reduce your monthly expenses if you meet certain conditions. Let’s take a look at what these conditions are and how you can get rid of PMI.

What is PMI?

Private mortgage insurance protects the lender should you fail to keep up with your mortgage payments. If you default on the loan, the insurance makes sure the lender doesn’t lose out. With less than 20% invested in the home, you are considered high risk and more likely to get behind on your payments. The lender considers it a risk and more likely to enter foreclosure.

How to Quit Paying Private Mortgage Insurance

Since you aren’t normally required to pay PMI when you have a 20% down payment, once you have the loan reduced to 80%, you can ask your lender to remove this private mortgage insurance. Depending on your situation and your down payment, it could take some time to pay the mortgage off to this level. By adding additional principal to your monthly mortgage payment, this will lower the loan balance. There are some other options, however.

Appraisal

If your home has increased in value, an appraisal might convince your lender that you no longer need to pay the insurance. You are reliant on your lender agreeing to this arrangement, and the appraisal has to value your home highly enough for this to work.

There are many factors that an appraiser will consider at an appraisal and some of those include the recent properties that have sold in the immediate area. Other factors which may improve the value of the home is if you have done recent upgrades such as a kitchen or a bathroom remodel.

Refinancing

Again, if your home has increased in value since your purchase, refinancing could make sense. You have to be careful with this, as you could find yourself in a worse position should the interest rate not be as competitive. But if you can get a better interest rate, and you only need a loan that is worth 80% of the value or less, this could be a great option. Having a lower interest rate and not having to pay PMI may allow you to pay your mortgage off early.

Home Improvements

If your home hasn’t increased in value by itself, you could help the situation along by remodeling. There are ways to help youboost your home value. If you make the right improvements to your home, you could see a jump in its value. However, the expense involved in making the improvements could end up costing you more than the money you’ll save on the insurance payments. Having an updated kitchen with quartz countertops may improve the value of the home. A home that is freshly painted also looks appealing and appears fresh and clean.

Paying More Monthly

If you are able to make larger monthly payments on the loan, you will increase your equity in the home faster. This will get you to the point of not needing to pay insurance sooner and save you money in the long run.

This has the added benefit of paying off the mortgage faster as well, reducing your interest payments, and getting you out from under the mortgage quicker. If you have the extra money to help reduce your loan, it could make a very sound financial sense.

What Happens When You Reach 80 Percent?

You will need to contact your lender once your loan amount is down to 80%. This will need to be done in writing, and you need to have a good payment history with them. You could also be asked to provide evidence that you haven’t taken other loans out on the property, like equity loans or lines of credit. The lender might still require an appraisal to make sure the value is at least as much as it was when the loan was taken out.

If you don’t request to have the insurance removed at 80%, the lender is required to remove it automatically when the loan gets to 78%. If you take the option of paying more, however, you may find that this doesn’t happen without your requesting it. It will only be removed at 78% without you asking if you have made regular payments. So if you’ve been paying more, make sure you ask to have it canceled as soon as you reach the 80% threshold.

You should make sure you are keeping track of how much you have paid off so that you can stop the PMI as soon as possible. If you don’t, you will be paying more than you have to, and they won’t refund you. So it pays you to be attentive to your mortgage payments and carefully read any documents they send.

Final Thoughts

Be sure to have a conversation with your lender when you are obtaining the loan. If you know you are going to be paying for PMI, let the lender know that you have a plan to get rid of it as soon as possible. Stay in contact with the lender to let them know when you are getting closer to 80%. Adding extra principal each month is a great way to reduce the loan balance and help you to achieve your goal. As the home appreciates in value that will also help you reach 80%

About the Author

The above real estate article“How to Get Rid of Private Mortgage Insurance”was written by Sharon Paxson atop Newport Beach CA Realtor.Sharon has experience representing clients with their residential real estate needs in Coastal Orange County and the Newport Beach area since 2005. Reach out to her anytime to get your most pressing real estate questions answered.

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FAQs

How to Get Rid of Private Mortgage Insurance? ›

Your servicer is legally required to grant your request to cancel your PMI as long as you meet the criteria below: You make your request in writing. You have a good payment history and are current on your payments. You can certify that there are no junior liens (such as a second mortgage) on your home.

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Can private mortgage insurance be waived? ›

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How do I ask for PMI to be removed? ›

You can typically remove PMI if market conditions lead to a significant increase in your home's value. You have to make a request with your lender and order a new appraisal. The appraisal confirms your property value rose enough to where you own the required amount of equity.

Can I remove my PMI if my home value increases? ›

If home values have gone up in your area or you've made a lot of improvements to your home, you could have more than 20% equity based on the home's current value. Providing the loan-to-value ratio with a new appraisal value meets the lender's requirements, you may be able to get PMI taken off.

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How do I get rid of mortgage protection insurance? ›

Ask to cancel your PMI: If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your mortgage servicer cancel your PMI. For more information about canceling your PMI, contact your mortgage servicer.

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How do I get rid of PMI without refinancing? ›

Equity. One path to removing PMI from your mortgage without refinancing is to build up the equity in your home. In this case, your PMI can be automatically removed when you reach a certain amount of equity. Equity is calculated by subtracting the amount you owe on your mortgage from the appraised value of your home.

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Do I have to wait 2 years to remove PMI? ›

Here's a caveat: To cancel based on current value, you must have owned the home for at least two years and have 75% LTV. If you've owned the home for at least five years, you can cancel at 80% LTV.

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Why is it so hard to get PMI removed? ›

Get an Appraisal

Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.

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How do I write a letter to remove PMI? ›

Dear (Servicer Name): I am requesting to cancel my private mortgage insurance. The coverage is with (Mortgage Insurance Company Name) and my mortgage loan number is (loan number). I have included documentation to support why I think the equity in my home has reached or exceeded 20%.

Can a lender refuse to remove PMI? ›

Yes, a lender can refuse to remove PMI. For instance, if your property does not appraise as expected or you do not satisfy a requirement, a lender can reject your request. However, if you meet the requirements, you can request the removal of PMI.

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Is it worth getting an appraisal to remove PMI? ›

Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.

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What is the PMI cancellation act? ›

The HPA addresses homeowners' difficulties in canceling private mortgage insurance (PMI) coverage. It establishes provisions for canceling and terminating PMI, sets disclosure and notification requirements, and requires the return of unearned premiums.

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Can you get rid of PMI on an FHA loan? ›

Even if you don't, they must cancel it automatically at 22% equity. Whether you reach those thresholds by paying down your mortgage or through property appreciation doesn't matter, so yes, you can remove PMI because your home's appraised value increases. MIP is the mortgage insurance you pay on FHA loans.

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Is it a good idea to remove mortgage insurance? ›

This could save you hundreds of dollars a month that could be used to pay down more of your home loan principle each month or used for other things. Of course, every situation is different. You'll need to crunch the numbers yourself to see if removing PMI on your loan is worth the refinancing costs.

Who is the only person who can cancel a mortgage insurance policy? ›

Cancelling mortgage insurance is typically permitted by lenders and investors after the homeowner has built up enough equity in the home.

Does it cost to cancel PMI? ›

Your mortgage lender must automatically cancel PMI for free when your principal balance reaches 78% loan-to-value (LTV). In other words, once you've paid 22% of your mortgage, your lender is required by law to terminate PMI.

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Do you always have to pay private mortgage insurance? ›

Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.

Is private mortgage insurance required? ›

Private Mortgage Insurance (PMI) is an insurance policy, separate from homeowner's hazard insurance coverage, that is usually required by the lender if the down payment is less than 20 percent of the sales price or appraised value of the house.

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How much to avoid private mortgage insurance? ›

Your down payment amount: A down payment of 20 percent or more results in no PMI. Below that cut-off, there can be a significant difference in the amount you'll pay every month, depending on how much money you put down. The closer your down payment is to 20 percent, the less your PMI.

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How long do you have to pay private mortgage insurance? ›

After you've bought the home, you can typically request to stop paying PMI once you've reached 20% equity in your home. PMI is often canceled automatically once you've reached 22% equity. PMI only applies to conventional loans. Other types of loans often include their own types of mortgage insurance.

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