Private Mortgage Insurance Cancellation: A Step-by-Step Guide

Canceling private mortgage insurance can be a game-changer for homeowners. If you put down less than 20% as a down payment, you're likely paying for PMI.

To cancel PMI, you'll need to meet certain requirements, such as having at least 20% equity in your home. This means your home's value must have increased significantly since you purchased it.

You'll also need to provide proof of your home's value, which can be done through an appraisal or a recent sale of similar homes in your area.

Conventional mortgages effective July 29, 1999 or later are subject to the Homeowners Protection Act of 1998, which has specific rules for terminating PMI.

For conventional mortgages made on or after July 29, 1999, PMI automatically terminates when the principal balance reaches 78% of the original value of the property. An exception applies to high-risk loans, where the principal must be reduced to 77% of the original value.

An option is available for a "cancellation date" when the amortization schedule reaches 80% or the principal is paid down to 80% of the original value. You should obtain a copy of the amortization schedule from the lender to determine your eligibility.

For conventional mortgages prior to July 29, 1999, Texas Insurance Code requires lenders to provide an annual notice to borrowers about their right to cancel PMI. This notice is typically printed in at least 10-point bold-face type and informs borrowers that they may be eligible to cancel PMI if the principal balance is 80% or less of the current fair market appraised value of their home.

Conventional mortgages effective July 29, 1999 or later are subject to the Homeowners Protection Act of 1998.

These mortgages have a built-in rule for when Private Mortgage Insurance (PMI) automatically terminates. It's based solely on the amortization schedule for the mortgage.

The termination date is when the principal balance of the mortgage reaches 78% of the original value of the property securing the loan.

You don't necessarily need a 20% down payment to buy a house, as many borrowers put down less and pay Private Mortgage Insurance (PMI). In 2023, the typical down payment was 8% for first-time buyers.

PMI is usually required for borrowers who can't make a 20% down payment, as they're considered higher risk for default. This insurance protects the lender.

Borrowers can expect to pay PMI as part of their monthly mortgage payment, along with principal, interest, and escrow payments. The cost of PMI varies based on your credit score and loan-to-value ratio (LTV).

You can cancel PMI on your conventional loan once the principal balance of your loan reaches 80% of the original value of the property.

To request cancellation, you'll need to submit a written request to your lender and be current on your loan payments. A good payment history is also required for approval.

Your lender is required to automatically remove PMI from your mortgage when the principal balance reaches 78% of the original value of the property, if you don't request it first.

You can request PMI removal once your loan-to-value (LTV) ratio drops below 80% of the property's original value, which can happen through a combination of paying down your mortgage balance and home appreciation.

The Homeowners Protection Act of 1998 requires lenders to automatically cancel PMI once the borrower's LTV ratio reaches 78% of the original value of the home or when the loan reaches the midpoint of its amortization period, whichever occurs first.

To understand when PMI can be removed from your monthly payments, consider the following metrics:

Refinancing your mortgage can be a strategy to remove PMI, particularly if you've seen a significant increase in your home's value or have made substantial improvements.

You can obtain a new loan that doesn't require PMI if your new loan balance is less than 80% of your home's current appraised value.

Refinancing comes with closing costs, so you'll need to weigh these expenses against the potential savings from eliminating PMI and possibly securing a lower interest rate.

In a market where interest rates are higher, refinancing solely to remove PMI may not be the most cost-effective option.

You may need to have at least 20% equity in your home to remove PMI by refinancing, and the rules for removal of MIP are different for FHA loans.

You can request that your lender remove PMI once the principal balance of your loan reaches 80% of the original value of the property. To do this, you'll need to submit a written request to your lender and be current on your loan with a good payment history.

The good news is that you don't have to wait for your lender to agree to remove PMI, as your lender is required to automatically remove it when the principal balance reaches 78% of the original value of the property. This is a federal regulation known as the "PMI Cancellation Act" or the Homeowners Protection Act of 1998.

If you have a conventional mortgage, you can also remove PMI by refinancing your loan, but you'll need to have at least 20% equity in your home. This is a different set of rules than for FHA loans.

You can also wait until you qualify for automatic or final termination of PMI, which is the easiest option. This happens when your lender has to automatically terminate PMI when your LTV ratio drops to 78 percent, or at the halfway point of your loan's amortization schedule.

You can qualify for automatic PMI termination if you've reached the halfway point of your loan's amortization schedule, which is typically after 15 years for a 30-year mortgage. This means you can get rid of PMI even if your mortgage balance hasn't yet reached 78% of your home's original value.

To get rid of PMI, you need to have at least 20% equity in your home. This can be achieved through various means, such as paying down your mortgage or refinancing your loan.

The Homeowners Protection Act of 1998 requires lenders to automatically terminate PMI when your LTV ratio drops to 78 percent. This is also known as the PMI Cancellation Act.

If you've paid according to your original payment schedule and have reached the milestones of 22% equity or the halfway point in time, you're eligible for PMI termination. Your loan must also be current and you must be in good standing with no delinquent, skipped, or insufficient payments.

Mortgage insurance premiums (MIP) on FHA loans can be a significant burden for homeowners. You can remove MIP on FHA loans once the loan balance falls below 78% of the original purchase price.

FHA loans require mortgage insurance premiums to be paid for at least 11 years. This can be a long time to pay for insurance, but it's a requirement for securing an FHA loan.

Conventional loans, on the other hand, have private mortgage insurance (PMI). PMI is usually required when a borrower puts down less than 20% of the purchase price.

The rules for removing PMI are different from those for removing MIP on FHA loans. To remove PMI, the loan balance must be below 80% of the original purchase price.

You can get rid of PMI by waiting until you qualify for automatic termination, which is usually when your LTV ratio reaches 78% of the original home value.

To reach this threshold, keep track of your mortgage balance and property value, and request PMI cancellation when your mortgage balance reaches 80% of the original value.

Paying down your mortgage earlier can also help reduce your mortgage balance and eliminate PMI.

Refinancing your mortgage is another option, especially if your home has appreciated significantly or interest rates have dropped since you initially obtained your mortgage loan.

Reappraising your home can also determine its current market value, which can help you eliminate PMI.

Here are some strategies to help you eliminate PMI: