How to Get Rid of PMI and Save Money on Your Mortgage

Private Mortgage Insurance, or PMI, is a monthly fee that gets added to your mortgage payment when you put down less than 20% on your home purchase. It is there to protect the lender if you stop making payments, not to protect you. For many homeowners, this extra cost feels like throwing money away each month. The good news is that PMI is not a permanent part of your loan. You can remove it, and you might be closer to that goal than you think. Understanding the rules for cancellation can save you hundreds of dollars every month for the rest of the time you own your home.

The most common way to get rid of PMI is simply to wait until your loan balance drops to 78% of the original value of your home. This is called the automatic termination date. Under federal law, your mortgage servicer must automatically cancel your PMI on that date as long as you are current on your payments. You do not have to do anything to start this process. However, this only happens if you have a good payment history. If you have been late on a payment recently, the automatic cancellation might be delayed. The key number to remember is 78%. When your loan reaches that point, the law is on your side.

You do not have to wait for automatic cancellation, though. You can request to have PMI removed earlier, once your loan balance is at 80% of the original value of the home. This is called borrower-initiated cancellation. The difference of 2% might not sound like much, but it could mean removing PMI many months or even a few years sooner. To request this, you need to write a letter to your mortgage servicer stating that you believe you have reached the 80% threshold. Most servicers require the request to be in writing. You also need to be current on your payments and have no late payments in the past year, or the past two years in some cases. Sometimes, the servicer will accept your word and your payment history to confirm the loan balance. Other times, they will require a new appraisal to prove that the home is still worth what you say it is.

This brings up an important point about your home’s value. The automatic cancellation rules are based on the original value of the home, meaning the price you paid at closing. But when you request an early cancellation based on the 80% rule, your servicer might look at the current value of your home instead. If your home has gone up in value since you bought it, this works in your favor. For example, if you bought a house for $200,000 with a 5% down payment, your original loan was $190,000. To reach 80% of the original value, you would need the loan balance to drop to $160,000. That takes years of regular payments. But if your home is now worth $250,000 because the market has gone up, then 80% of the current value is $200,000. Since your loan balance is $190,000, you are already below that threshold. This means you could potentially get PMI removed now, even though you havent paid down much of the principal.

Getting an appraisal can cost you several hundred dollars, and there is no guarantee the result will be high enough to satisfy the servicer. But if you believe your home has increased in value significantly, it is often worth the risk. The savings from removing PMI usually cover the cost of the appraisal within a few months. You have to pay for the appraisal upfront, but the payoff can be substantial.

Another path to removing PMI is through a home improvement that increased your property’s value. If you added a new roof, finished a basement, or renovated a kitchen, the appraised value of your home might now be higher. You can use this to argue that you have reached the 80% threshold based on the current value of the property. The rules allow for this, but you must provide documentation of the improvements. Your servicer might require a new appraisal to confirm the increased value.

It is also important to know that PMI removal rules are different for certain types of loans. If you have a Federal Housing Administration, or FHA, loan that was taken out after June 2013, you are stuck with mortgage insurance for the life of the loan in most cases. This is not PMI; it is called MIP, but it works the same way as an added cost. The only way to get rid of MIP on a newer FHA loan is to refinance into a conventional loan once you have enough equity. If you have a FHA loan from before 2013, the rules are different, and you can cancel the insurance once your loan hits a certain threshold. You need to check your specific loan papers or call your servicer to know which category you fall into.

Conventional loans, which are not backed by the government, follow the rules described earlier. Most homeowners with conventional loans can cancel PMI once they reach the 80% mark, assuming they are in good standing. The process is straightforward, but it requires you to be proactive. Many homeowners simply wait for the automatic cancellation, not realizing they could have saved money for months or years by making a simple request.

The single most important thing you can do is to keep track of your loan balance and your home’s value. Check your mortgage statement each month to see how much principal you owe. Look at comparable home sales in your neighborhood to get a rough idea of your home’s current value. If you think you are close to the 80% mark, call your mortgage servicer and ask what their specific process is for canceling PMI. Every servicer is slightly different, but the law gives you the right to cancel once you meet the conditions. Do not assume your servicer will do it for you. In many cases, they have no obligation to inform you that you are eligible. The responsibility falls on you.

Removing PMI is one of the easiest ways to lower your monthly housing cost without refinancing or moving. It requires some paperwork and possibly an appraisal, but the long-term savings are significant. A few hundred dollars in fees can turn into thousands of dollars kept in your pocket over the remaining years of your loan. If you have owned your home for more than a few years, it is worth checking your numbers today. You might be closer to savings than you think.