How to Remove PMI From Your Mortgage

If you’re current on your loan payments and you’ve established at least 20% equity in your home, your mortgage lender should automatically remove private mortgage insurance (PMI) from your loan. Since PMI can add hundreds of dollars to your monthly mortgage payments, it’s worth paying attention to your equity. If you don’t want to wait for PMI to fall off, you can request to have it removed. We’ll walk you through the steps you need to take to remove PMI from your mortgage.

What Is Private Mortgage Insurance (PMI)?

When you purchase a home, you’re typically asked to put down at least 20% of the home’s cost to give you a head start on building equity. If you put down less than 20%, mortgage lenders usually require you to pay private mortgage insurance (PMI) if you’re getting a conventional loan.

Who PMI Protects

PMI doesn’t protect your home. Instead, it protects the lender in case of a loss or if the borrower stops making mortgage payments. If you make a down payment of 20% or more, you can avoid PMI.

PMI and Your Loan-to-Value (LTV) Ratio

The cost of PMI depends on several personal factors, such as your credit score and loan-to-value (LTV) ratio. Your LTV represents the loan value versus the value of the home. Typically, lenders will lend 80% of a property’s value.

If a borrower’s down payment is less than 20%, the lender has a greater risk of loss if they must resell the property to recoup from a borrower’s default. Additioanlly, lenders might be cautious of borrowers who make smaller down payments since they might be more likely to default. As a result, the lender requires insurance to protect them for LTV ratios above 80%.

Cost of PMI

PMI can add a couple hundred dollars to your monthly mortgage payment. According to Freddie Mac, you can expect to pay around $30 to $70 for every $100,000 of your loan. For instance, taking out a $300,000 loan might cost you an additional $90 to $210 for PMI every month.

When Does PMI Go Away?

Fortunately, you aren’t required to make PMI payments for the length of your mortgage. As soon as the balance of your mortgage drops to 78% of its purchase price or you’re halfway through your loan term, PMI falls off. Your lender will notify you of the date when this is scheduled to happen, assuming that you stay current with your payments.

You’ll get a PMI disclosure notice when you close on your loan, which includes the date your PMI will end based on your regular on-time payments. This is the date you’ll have 22% equity in your home. Your lender will also disclose when you will reach the midpoint of your loan. So, if you have a 30-year conventional loan, your PMI must drop off after 15 years of on-time payments, regardless of whether you have 22% equity.

How to Request PMI Cancelation

Although PMI should automatically fall off your mortgage once your LTV reaches 80% of the purchase price, remember you must have made on-time payments. If you fall behind on your payments, your lender won’t remove PMI.

If you’ve been steadily making extra payments, or your home is worth more, you may be able to remove PMI early. You can write to your servicer if you believe your home has increased in value and you now have at least 20% equity. Depending on the mortgage lender, they might ask you to pay for an appraisal. If the appraisal shows your home has increased in value and you’ve reached 80% LTV, the lender must remove the PMI.

Other Ways to Get Rid of PMI

PMI can add a significant amount to your monthly mortgage, so it’s not surprising that you may want to get rid of it as quickly as possible. Here are your options.

• Wait for the automatic or final termination of PMI: This is probably the easiest option since all you have to do is make your monthly mortgage payments on time. However, it might not be the fastest way to remove PMI.
• Pay down your mortgage earlier: You’ll reach 20% equity faster if you make extra mortgage payments. Although additional payments will eliminate PMI quicker, some might find it challenging since you must have the financial means to make extra payments.
• Reappraise your home: If you believe your home has gained in market value, you might have 20% equity, but you’ll have to pay for an appraisal to prove it. If the value has risen, putting your LTV at 78% or lower, write to your lender to request they drop PMI.
• Refinance your mortgage: A refinance is when you book a new loan to replace the existing mortgage, usually at a lower rate. Be sure to shop for refinance lenders, because a refinance can come with significant costs. However, if you refinance and reach 20% equity with the new loan, your PMI can fall off. Additionally, if you refinance at a lower rate, you’ll benefit from lower payments.

The Bottom Line

No one wants to pay for additional insurance that doesn’t directly benefit them. Fortunately, private mortgage insurance (PMI) doesn’t stay on your loan forever. Once you’ve reached 20% home equity or are halfway through your loan, PMI falls off. If you can’t wait for this, you can make additional principal payments or get an appraisal if you suspect your home’s value has increased. You can even refinance your mortgage if you’d also like to adjust other terms and conditions of your loan.