How to Get Rid of PMI

Private mortgage insurance (PMI) is automatically cancelled once your mortgage balance reaches 78% of the home’s purchase price (22% equity) or at the halfway point of the loan term, whichever comes first. You can request PMI removal earlier, when your equity reaches 20%, by contacting your lender.

Lenders typically only require PMI when a borrower puts down less than 20% on a home purchase they are financing with a conventional loan. This insurance policy requirement is to protect the lender against losses if you default on the loan by not making payments or failing to repay the mortgage.

If you’re paying PMI or planning on buying a home with less than 20% down, you’re probably looking forward to the day you don’t have to pay it anymore. Fortunately, there are five different ways to remove PMI and reduce your monthly payments. 

Wait until your mortgage balance reaches 78% of your home’s purchase price

The easiest way to get rid of PMI is to wait until you qualify for PMI cancellation. According to the PMI Cancellation Act, formally known as the Homeowners Protect Act of 1998, lenders are required to cancel your PMI for free when your mortgage balance reaches 78% of your home’s purchase price, or when you’ve reached the halfway point of your loan term. 

In other words, your loan servicer is legally obliged to automatically cancel your PMI payments when you reach 22% home equity or have made half of your total mortgage payments. If you have a 30-year mortgage that requires 360 monthly payments, the halfway point would be at 15 years, or when you’ve made 180 monthly payments. 

PMI payments must stop at the halfway point, even if your loan-to-value (LTV) ratio hasn’t dropped to 78%. The only exception would be if the loan isn’t current due to delinquent, skipped, or insufficient payments. 

Request removal when you reach 20% equity in your home

Another way to get rid of PMI is to request removal once you’re reached 20% equity in your home. Although it’s only a 2% difference from when lenders are required to eliminate PMI payments, getting rid of PMI earlier could save you several hundred dollars. 

You can reach 20% equity by simply paying down your principal according to your amortization schedule. However, if you’ve lived in the home for at least two years and its value has increased, you might be able to remove PMI sooner by asking your servicer for a new appraisal or broker price opinion (BPO). If the new valuation puts you at 75% LTV, you can drop PMI. 

Before submitting a PMI cancellation request, borrowers should confirm they’ve reached 20% equity by checking their loan balance or getting a new home appraisal. It’s also important to address any missing or incomplete mortgage payments to make sure you’re in good standing with your lender. Be sure to submit a formal request in writing. 

Lenders typically require the following before approving a PMI cancellation request:

• Good payment history: No mortgage payments more than 30 days late in the past 12 months, and no payments more than 60 days late in the last 24 months. 
• No liens: Your outstanding mortgage balance should be your only debt on your home. Second mortgages, HELOCs, and other liens on your property could make it harder for your lender to approve your PMI cancellation request. 
• Proof of value: In most cases, borrowers will need to purchase a new appraisal to ensure the home’s value hasn’t decreased. Some lenders might accept an automated valuation or an estimated value from a licensed broker.

Pay down your mortgage principal early 

Putting more money towards your mortgage principal can help you build equity and request cancellation sooner. If you can afford it, consider increasing your monthly payments or making a lump-sum payment specifically towards the principal. 

Be sure to inform your lender that the extra funds are meant for the principal and not for your regular monthly payments. Regular monthly payments include your principal, interest, taxes, and insurance (PITI). To make sure your equity grows as soon as possible, focus your payments on the mortgage principal, not the overall PITI. 

Refinance into a new loan

Refinancing your mortgage can help you eliminate PMI payments if the new loan balance is less than 80% of the home’s value. If rates have gone down since you first took out your mortgage, consider refinancing into a new loan or line of credit. Just keep in mind that refinancing requires borrowers to pay closing costs.

Consider refinancing with us at Zillow Home Loans*. We offer cash-out, rate-and-term and streamline refinance options.

Renovate your home

Renovating your home with projects that add property value can also help you eliminate PMI. Borrowers who reach 20% or more in home equity through forced appreciation don’t need to wait 2-5 years to request PMI cancellation as long as their LTV ratios are 80% or less. 

Final thoughts on getting rid of PMI insurance

PMI is required on all conventional loans with a down payment of less than 20%. Borrowers need to pay PMI every month until they reach at least 22% home equity to automatically cancel it. Borrowers who reach 20% home equity can request PMI cancellation from their lender, but it’s not guaranteed. You can achieve 20% home equity through natural appreciation, additional principal payments, or home renovations. 

If rates drop, you can also look into refinancing into a lower LTV ratio, which would eliminate the need for PMI on your new loan. Keep in mind these strategies only apply to conventional loans. Borrowers who choose a government-backed loan, like a FHA, VA, or USDA loan, don’t pay PMI, so these strategies don’t apply to them.

*Zillow Home Loans; an equal housing lender. NMLS #10287