How to Get Rid of Private Mortgage Insurance (PMI): 4 Easy Methods

Private mortgage insurance (PMI) allows you to put down less than 20% on a conventional home loan, but it also adds an expensive line item to your monthly mortgage payments that can last for several years of your loan term.

If you’re wondering how to get rid of PMI payments, read on for a list of four easy ways to remove PMI from your mortgage. PMI cancellation can improve your finances by removing a significant expense from your mortgage payment, freeing up money for savings or other expenses.

When does PMI go away?

The rules about who must have private mortgage insurance — and for how long — come from the Homeowners Protection Act, also known as the PMI Cancellation Act. In general, you can get rid of your PMI by paying down your loan’s principal balance or by letting enough time pass after your closing.

You must also maintain your eligibility for PMI cancellation by making regular payments. You may not be able to cancel PMI if:

• You are not current on your loan.
• You’ve made a payment that was 30 days or more late within the last year.
• You’ve made a payment that was 60 days or more late within the last two years.

How to remove PMI: 4 methods

There are four methods you can use to terminate your PMI, according to federal guidelines:

1. Request PMI cancellation

You can request PMI cancellation when the principal loan balance reaches 80% of your home’s purchase price. The date you’re expected to reach 80% should be listed on your PMI disclosure form or in your loan’s amortization table.

The timeline is really in your hands, though, because you’re allowed to pay more than your scheduled payments require. If you pay your mortgage down to 80% ahead of schedule, you’ll also be eligible to cancel your PMI sooner.

2. Wait for automatic termination

When your principal loan balance reaches 78% of the home’s original value, your PMI will automatically terminate. Alternatively, if you reach the halfway point of your repayment term — 15 years on a 30-year loan, for example — your PMI will drop off regardless of the principal balance amount.

3. Refinance to remove PMI

Another option is to refinance into a new conventional loan. If you have at least 20% equity in your home, you can avoid PMI payments on the new loan. And, if current refinance rates are significantly lower than your existing mortgage rate, refinancing can reduce your overall monthly payments in addition to removing PMI.

Just be sure you weigh the benefits against the costs of a refinance. Unlike requesting PMI cancellation, which is free, refinancing requires you to pay closing costs and provide documentation of your home’s value and your income, assets and credit. You should also be aware of mandatory waiting periods — sometimes called “seasoning requirements” — that can make it difficult to refinance within one year of buying the home.

4. Get a new appraisal if your home value increases

If your home’s value increases enough for you to reach the 20% equity threshold, you can request PMI cancellation just as you would have if you had paid the principal balance down to 80%. You’ll need to prove that your home has gained value, so be prepared to order a home appraisal or, for a cheaper option, a broker price opinion (BPO).

How to request PMI cancellation: A step-by-step guide

Step 1. Make on-time payments.

You’ll need to be current on your loan payments and, if possible, have a history of on-time payments for at least two years to enjoy a smooth exit from PMI.

Step 2. Know your home equity amount

Ensure your equity has reached at least 20%, which means your loan-to-value (LTV) ratio is 80% or lower. You can achieve this either by paying down your principal or by showing that your property’s value has increased.

Step 3. Contact your lender

Call or write to your mortgage servicer to confirm your eligibility for PMI cancellation and learn about its specific documentation and other requirements.

Step 4. Provide documentation

Be prepared to submit proof of your home’s current value, such as a recent appraisal.

Step 5. Submit a written request

Follow your lender’s instructions to send a written request to cancel PMI and include any required documents.

Step 6. Await confirmation

Once your lender verifies your LTV ratio and other conditions (such as a good payment history), it will cancel PMI. You’ll see the adjustment reflected in your next mortgage statement.

How much is PMI?

Annual PMI rates for a conventional loan are usually around 0.60% to 1.90% of the loan amount. On a median-priced home today, that comes to between $210 and $664 per month.

A good rule of thumb is to expect PMI payments of $30 to $70 per month for every $100,000 you borrow, according to Freddie Mac.

The following nine factors influence exactly how much you will be charged for PMI:

How to calculate PMI

As a consumer, it can be difficult to calculate an exact PMI payment amount because many factors are involved. Plus, mortgage lenders don’t disclose the exact formulas they use to determine your PMI amount.

However, a good option is to use a mortgage calculator to view an estimated PMI payment amount. You can use LendingTree’s mortgage calculator or Fannie Mae’s mortgage calculator. While they don’t provide identical information, they can help you get a sense of what your PMI might be.

How to calculate the loan balance you need to cancel PMI

Fortunately, calculating the loan balance required to cancel your PMI is simple. Just multiply your original home purchase price by 0.80 to estimate when you’ll be eligible to remove PMI payments. For example, if you purchase a $300,000 home, you could cancel your PMI when your loan’s principal balance reaches $240,000.