Remember: You might be able to eliminate PMI when your home value rises or when you refinance the mortgage with at least 20 percent equity. But the onus is on you to request it.
Loan servicers must cancel PMI once you reach a 78 percent LTV ratio, based on the home's original appraised value, or halfway through your loan's term (15 years into a 30-year mortgage, for example).
To remove private mortgage insurance, you must have at least 20% equity in the home. When you have paid down the mortgage balance to 80% of the home's original appraised value, you may ask the lender to cancel private mortgage insurance. When the balance drops to 78%, the lender must cancel PMI.
Paying down would not only yield the monthly savings on PMI, but also additional savings on regular monthly mortgage interest for the amount of principal paid down. If you go this route please be certain to put in writing that the additional funds are for paying down principal directly.
Get an Appraisal
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
Your mortgage lender will determine the PMI rate and multiply the percentage by the loan balance. For example, if the PMI rate is 0.5% and your loan amount is $300,000, your PMI will cost $1,500 annually or $125 monthly.
Using a new appraisal to remove PMI involves an appraisal of your home's current value to prove that the LTV ratio has decreased due to an increase in your home's original value. Refinancing is another option, allowing you to secure a lower rate or switch from an FHA loan to a conventional mortgage.
PMI is automatically removed when your loan-to-value (LTV) ratio reaches 78%. You can request to have PMI removed from your loan when you reach 80% LTV in your home. You can achieve an 80% LTV ahead of schedule if your home's value increases or if you make extra loan payments.
To avoid paying PMI on your mortgage, you'll need to have 20% of the home's sales price to use as a down payment on a conventional loan. You could also take out a piggyback loan, if it's available from your lender. In this case, you'd make a 10% down payment on your home and use a second mortgage to get to 20% equity.
Your loan-to-value ratio.
Your loan-to-value (LTV) ratio measures how much of your home's value you're borrowing. The lower your down payment, the higher your LTV ratio, and the more expensive your PMI will be. Aim for an LTV ratio under 85% to get the best PMI rates.
Is mortgage insurance tax-deductible? No, private mortgage insurance isn't tax-deductible now. The mortgage insurance deduction was only available for eligible homeowners for the 2018–2021 tax years.
When PMI is canceled, the lender has 45 days to refund applicable premiums. That said, do you get PMI back when you sell your house? It's a reasonable question considering the new borrower is on the hook for mortgage insurance moving forward. Unfortunately for you, the seller, the premiums you paid won't be refunded.
The Bottom Line: Removing PMI Can Help Ease Your Financial Burden. Mortgage insurance gives many home buyers the option to pay a smaller amount upfront for their downpayment. However, it increases the monthly payment until you're able to remove it.
No. Your loan docs will outline the terms of your PMI, but you can never cancel it based on the tax assessment. Usually the lender will either require a new appraisal or you would need to refinance.
Determining equity is simple. Take your home's value, and then subtract all amounts that are owed on that property. The difference is the amount of equity you have.
Yes. You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. The first date you can make the request should appear on your PMI disclosure form, which you received along with your mortgage.
Most lenders require that your LTV ratio be 80% or lower before they will cancel your PMI. Note: Some lenders express the percentage in reverse, requiring at least 20% equity in the property, for example.
However, MIP is specific to FHA loans and is required for all borrowers, regardless of their down payment, while PMI is associated with conventional loans and can typically be removed once the homeowner builds enough equity. FHA PMI removal is technically impossible as FHA loans come with MIP.
No, it will not affect your taxes. The appraiser does not report the appraised value or anything they see in the home (e.g., illegal decks or additions, converted garages, etc.) to the tax assessor.
Just multiply your original home purchase price by 0.80 for an estimate of when you'll be rid of PMI payments. If you purchased a $300,000 home, for example, you can cancel your PMI when the principal balance reaches $240,000.
Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.
A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction while a reading at 50 indicates no change. The further away from 50, the greater the level of change.
PMI will cost less if you have a higher credit score. Generally you'll see the lowest PMI rates for a credit score of 760 or above.