How to Remove PMI: Stop Paying for Mortgage Insurance You Don't Need

Private Mortgage Insurance (PMI) protects your lender if you default. It doesn't protect you. And once you have enough equity, you shouldn't be paying it.

Here's how to eliminate PMI and keep more of your money.

What Is PMI?

PMI is required when you put less than 20% down on a conventional mortgage.

Typical PMI costs:

• 0.3% to 1.5% of loan amount annually
• Paid monthly as part of your mortgage payment

Example:

• Loan amount: $400,000
• PMI rate: 0.7%
• Annual PMI: $2,800
• Monthly PMI: $233

That's $233/month you could eliminate.

When Does PMI Automatically Terminate?

Automatic Termination (78% LTV)

Federal law requires lenders to automatically cancel PMI when your loan balance reaches 78% of the original purchase price.

Key point: This is based on original value, not current value.

Example:

• Original purchase price: $500,000
• Original loan: $450,000 (90% LTV)
• 78% of original value: $390,000
• PMI cancels when balance hits $390,000

This happens through normal amortization—usually around year 11 of a 30-year mortgage.

Final Termination

PMI must be canceled at the midpoint of your loan term, regardless of LTV.

For a 30-year loan, PMI automatically ends at year 15 even if you still owe more than 78%.

How to Remove PMI Earlier

You don't have to wait for automatic termination. Here's how to cancel sooner.

Method 1: Request Cancellation at 80% LTV

You can request PMI cancellation when you reach 80% LTV (vs automatic at 78%).

Requirements:

• Loan balance at 80% of original value
• Current on payments
• Good payment history (no 30-day lates in past 12 months)
• No subordinate liens (HELOCs, etc.)

Process:

1. Calculate when you'll hit 80% LTV
2. Send written request to your servicer
3. Servicer may require appraisal (at your expense)
4. PMI removed upon approval

The math:

• Original value: $500,000
• 80% = $400,000
• When your balance hits $400,000, you can request cancellation

Method 2: Pay Down Principal Faster

Accelerate to 80% LTV by making extra principal payments.

Example:

• Current balance: $420,000
• 80% LTV target: $400,000
• Gap: $20,000

Options:

• Lump sum payment of $20,000
• Extra $500/month for 40 months
• One-time bonus or tax refund applied to principal

ROI calculation:

• PMI cost: $233/month
• Extra payment: $20,000
• Payback: 20,000 ÷ 233 = 86 months (7 years)

If you'll stay 7+ years, the paydown makes sense.

Method 3: Get a New Appraisal (Appreciation-Based)

If your home has appreciated, you may have 20%+ equity even without extra payments.

How it works:

1. Request appraisal-based PMI removal from servicer
2. Pay for appraisal ($400-$600)
3. If appraised value shows 20%+ equity, PMI is removed

Example:

• Original purchase: $500,000
• Current balance: $430,000
• Original LTV: 86%
• But home now appraised at $550,000
• Current LTV: $430,000 ÷ $550,000 = 78%

You've hit 20%+ equity through appreciation.

Requirements vary by lender:

Some lenders require more equity for appreciation-based removal.

Method 4: Refinance

Refinancing into a new loan without PMI.

When it makes sense:

• You have 20%+ equity
• Current rates are similar or lower than your rate
• You'll stay long enough to recoup closing costs

When it doesn't:

• You locked a low rate (2020-2021)
• Closing costs exceed PMI savings
• You'll move soon

Alternative: Some lenders offer PMI removal via loan modification (without full refinance).

Method 5: Home Improvements

Increase your home's value through strategic improvements.

High-impact projects:

• Kitchen remodel
• Bathroom addition
• Finished basement
• ADU construction

After improvements, request an appraisal. If the new value puts you at 80%+ LTV, request cancellation.

Caveat: Improvement costs must make sense. Don't spend $30,000 to save $3,000/year in PMI.

Step-by-Step PMI Removal Process

Step 1: Check Your Current Position

Find out:

• Current loan balance (monthly statement)
• Original purchase price (closing docs)
• Current estimated value (Zillow/Redfin as starting point)
• PMI amount (monthly statement)

Step 2: Calculate Your LTV

Based on original value: Current balance ÷ Original purchase price = LTV

Based on current value: Current balance ÷ Estimated current value = Current LTV

Step 3: Determine Your Path

Step 4: Contact Your Servicer

Call or write to your mortgage servicer (the company you send payments to).

Ask:

• What's my current LTV based on original value?
• What's your process for PMI removal?
• Do you allow appraisal-based removal?
• What are the requirements?
• What forms do I need to submit?

Step 5: Submit Written Request

Put your cancellation request in writing. Include:

• Your name and loan number
• Property address
• Statement that you believe you've met requirements
• Request for PMI cancellation
• Signature and date

Send via certified mail (keep receipt).

Step 6: Complete Any Requirements

You may need to:

• Pay for an appraisal
• Provide proof of no subordinate liens
• Certify good payment history

Step 7: Verify Removal

Once approved:

• Check your next statement
• PMI should no longer appear
• Payment should decrease by PMI amount

FHA MIP: Different Rules

FHA loans have Mortgage Insurance Premium (MIP), not PMI. The rules are different—and worse.

FHA MIP Rules (Loans After June 2013)

• Less than 10% down: MIP for life of loan
• 10%+ down: MIP for 11 years

You cannot cancel FHA MIP early based on equity.

Your Only Options

1. Refinance to conventional (if you have 20%+ equity)
2. Wait 11 years (if you put 10%+ down)
3. Pay for life (if you put less than 10% down)

FHA MIP rates: 0.55% annually for most borrowers.

When to Refinance Out of FHA

As soon as you have 20% equity and current conventional rates make sense, refinance to eliminate MIP.

VA and USDA Loans

VA loans: No monthly mortgage insurance (just upfront funding fee)

USDA loans: Have guarantee fee (0.35% annually). Cannot be removed—must refinance to eliminate.

The ROI of PMI Removal

Quick Calculation

• Annual PMI cost: $2,800
• Cost to remove (appraisal): $500
• Net first-year savings: $2,300
• Every subsequent year: $2,800 savings

Lump Sum Paydown Calculation

• PMI cost: $233/month
• Amount to reach 80% LTV: $20,000
• Alternative: Invest $20,000 at 7% = $1,400/year return
• PMI savings: $2,800/year
• Net benefit of paydown: $1,400/year

Paying down makes sense if PMI savings exceed investment returns (usually the case).

Common PMI Removal Mistakes

Mistake 1: Waiting for Automatic Termination

You could save 2-3 years of PMI by being proactive.

Mistake 2: Not Requesting Removal at 80%

It's not automatic at 80%. You must request it. Many homeowners forget and pay extra months.

Mistake 3: Ignoring Appreciation

Your home may have appreciated enough to qualify now. Check annually.

Mistake 4: Refinancing Just for PMI Removal

If you have a great rate, don't throw it away to eliminate PMI. Request removal instead.

Mistake 5: Not Getting It in Writing

Always get written confirmation that PMI is canceled. Check subsequent statements.

The Bottom Line

PMI is temporary protection you're paying for permanently—until you take action.

Action plan:

1. Check your LTV now (both original and current)
2. If under 80%, request cancellation today
3. If close, pay down or wait
4. If not close but home appreciated, get an appraisal
5. Mark your calendar to check annually

Removing PMI typically saves $150-$300+ monthly. That's $1,800-$3,600+ per year back in your pocket.

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Once PMI is gone, your equity is more accessible. Calculate your HELOC potential →