How To Remove PMI: Everything You Need To Know

It used to be considered standard that you had to put 20% down to have a chance at getting a mortgage loan. By partially compensating lenders in the event of default, private mortgage insurance (PMI) allows the offering of mortgage products with lower down payment requirements. You still don’t have to like paying it. We’ll go over how to remove PMI.

What Is Private Mortgage Insurance And How Does It Work?

Private mortgage insurance (PMI) premiums are paid to help cover some of the lender’s losses if a borrower defaults. Although PMI is associated with conventional loans, there are also other types including mortgage insurance premiums (MIP) on FHA loans. VA loans have a funding fee that can be paid upfront or over the life of the loan.

PMI is required on conventional loans when you make a down payment of less than 20%. It mitigates the additional risk being taken on by lenders. Although no one likes paying it, it’s not all bad. Having PMI as an option allows lenders to offer loan options with lower down payments.

When Can PMI Be Removed?

PMI can usually be removed when you’ve reached 20% equity in your home, if it’s included in your monthly payments. When you get a conventional mortgage loan, the time when you can expect PMI removal is listed in your closing documents.

By law, you’re required to request PMI removal in writing. Talk to your servicer about the proper form. If it’s not requested, the policy is automatically canceled once you reach 22% equity based on the original amortization schedule and property value at the time you closed. It also auto cancels at the midpoint of your loan. You must be current on your loan.

It should be noted that this is based on the original amortization schedule, meaning it assumes you make no more than the required mortgage payment every month. There are ways to remove your PMI beyond making your mortgage payment every month. We’ll touch on these specific guidelines next.

Different Types Of PMI And How To Possibly Remove Them

There are four basic types of PMI. Which one you have will play a big role in whether the PMI is removable.

Borrower-Paid Mortgage Insurance

Borrower-paid mortgage insurance (BPMI) is a charge paid by the homeowner. It’s an annual premium that’s divided into monthly chunks before being added back into your mortgage payment as part of your escrow account.

BPMI can be removed if you qualify based on one of several scenarios. We’ve laid it all out in the table below. Figures in the table are based on the amount of equity you need to terminate mortgage insurance by mortgage investor. This is calculated by subtracting your existing balance from your original balance and then dividing by the original balance as follows:

(Original Mortgage Balance - Existing Mortgage Balance)
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Original Mortgage Balance

Please note that there may be additional requirements depending on your specific scenario on top of the equity requirements in the table above, such as timely mortgage payments.

In order to cancel mortgage insurance, you have to follow the following steps:

1. Submit a written request. Yeah, it’s antiquated. But the law requires it.
2. Make a list of the improvements. This is only necessary if you’re requesting the removal of mortgage insurance based on renovations.
3. Have your home value confirmed. Your servicer will have a broker price opinion or appraisal done to confirm that the new value means you can stop paying for mortgage insurance based on the equity you have.
4. You have to be current on your mortgage. If you’re behind on payments, the mortgage insurance remains regardless of equity until you’ve caught up.

We did mention earlier that if you don’t do anything, mortgage insurance usually cancels on its own once you reach 22% equity or the midpoint of the loan term. This is true for single-unit primary properties and second homes. Investment properties and primary homes with more than one unit don’t auto cancel. You’ll have to write a request once you get enough equity built up.

While not true in every case, you can often pay down the loan to get to 20% equity in remove mortgage insurance faster than if you waited to do so based on the amortization schedule and only making the minimum monthly payment. Consult your mortgage servicer for more information.

Lender-Paid Mortgage Insurance

Lender-paid private mortgage insurance (LPMI) is a mortgage insurance policy that’s paid for up front by the lender. In exchange for avoiding the separate monthly fee coming out of your escrow account, your lender charges you a slightly higher rate.

Some people prefer this to having an additional monthly fee. It’s just important to note that the higher rate you get with LPMI is permanent. The only way you get a new one is by refinancing your mortgage.

Single Premium PMI

With single premium PMI, you can choose to pay the full cost of your mortgage insurance policy upfront at closing. If you do this, you’ll have a monthly mortgage payment that’s as low as if you didn’t pay for mortgage insurance at all. It’s just a matter of whether you can afford to pay the costs at closing.

Split Premium PMI

Finally, there’s split premium PMI. With this option, you make a partial payment of your PMI premium upfront at closing. In exchange the monthly premiums on your PMI are reduced for as long as you have it. This is another one where you would be paying some amount of monthly BPMI.

The PMI can be removed as long as you meet the equity amounts for the appropriate scenario listed above and follow the same steps:

1. Write a request for PMI removal.
2. Document any improvements necessary to show value change was due to renovation.
3. An appraisal or broker price opinion will confirm the value.
4. Make sure you’re caught up on your payments.

PMI Removal FAQs

Now that you’ve got the basic outline, let’s answer a few frequent questions regarding PMI removal.

How much does PMI cost?

If you’re paying PMI on a monthly basis, the cost can range anywhere from 0.2% – 2% of the loan amount annually. This is dependent on factors including the loan amount, the length of your term, your equity, credit score, number of units in your home, the purpose of the loan and whether it’s for a manufactured home. Consult a Home Loan Expert for more info.

Can I avoid PMI?

The way to completely avoid PMI is to make a 20% down payment on a conventional loan. You can avoid the monthly payment by opting for LPMI, but you will be charged a higher rate over the life of the loan.

When does PMI go away?

PMI is automatically removed on single-unit primary homes and vacation homes when you reach 22% equity or the midpoint of the loan term, whichever happens first. However, you can typically request it be removed once you’ve reached 20% equity in your home in many cases as long as the value is verified. You will also need to be current on your payments.

The Bottom Line

PMI enables you to get into a home with a lower down payment by protecting the lender in the event that you default. However, no one likes paying it. If you opt for LPMI, you avoid the monthly fee, but will have a slightly higher rate. If you make monthly PMI payments, these can typically be removed once you reach 20% equity. They automatically come off at 22% equity.

Perhaps you’ve built up enough equity that you feel you could get a lower rate without the PMI by refinancing. Check out our refinance calculator to go over your options. If you’re ready to move forward with a new loan, you can apply online or give us a call at (888) 452-0335.