You don't have to refinance to remove a PMI early. You just need an appraisal, which you would have to pay for, so it still may not be worth it.
Single-premium PMI
Depending on the terms of the loan, you can either pay this in full at closing or roll the amount into the loan for a higher balance. If you pay it upfront, you'll get the benefit of lower monthly mortgage payments.
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.
FHA mortgage loans don't require PMI, but they do require an Up Front Mortgage Insurance Premium and a mortgage insurance premium (MIP) to be paid instead. Depending on the terms and conditions of your home loan, most FHA loans today will require MIP for either 11 years or the lifetime of the mortgage.
1. Refinance to a Conventional Loan. The most common and effective way to remove PMI from an FHA loan is to refinance into a conventional mortgage. This can offer benefits such as no more annual MIP payments, potentially lower interest rates, and longer loan terms.
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.
You can remove PMI, or private mortgage insurance, from your mortgage after you have established enough equity in your home. You will need at least 20% in equity. At that point, you can request to have it removed or wait for it to automatically drop off when you have 22% in equity.
You typically have to pay PMI until you reach 20% equity in your home, at which point you can typically request cancellation. Additionally, your lender may be required to cancel PMI once your mortgage balance reaches 78% of the original home value, or 22% equity.
You have the right to remove PMI for many mortgages, once you have paid down your mortgage to a specified point. Ending PMI reduces your monthly costs. Some lenders and servicers may allow removal of PMI under their own standards.
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.
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.
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.
To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).
The mortgage insurance rate you receive will be expressed as a percentage. It may depend on factors such as your down payment and credit score. But typically it's around 0.2% to 2% of the loan amount per year. Credit Karma's PMI calculator will provide an estimate for you.
Once you reach 20% equity in your home, you have another option for removing PMI without refinancing. You can apply to cancel the PMI. This involves submitting a request to your lender. You'll need to be in good standing with your lender, and it helps if you haven't taken out a second mortgage.
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.
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.
As long as you meet your lender's requirements, a new appraisal of the property could help you get rid of PMI.
“After sufficient equity has built up on your property, refinancing from an FHA or conventional loan to a new conventional loan would eliminate MIP or PMI payments. This is possible as long as your LTV ratio is at 80% or less.”
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.
FHA Rule 75 states that 75% of the rental income must exceed the monthly mortgage for the property to be self-sufficient. This percentage must be at least enough to cover the mortgage payment, known as PITI (Principal, Interest, Taxes, and Insurance.)
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
Can I rent out my FHA home after the first year? Yes, after fulfilling the initial one-year occupancy requirement, you can rent out your FHA home. However, if you plan to purchase another property with an FHA loan, you will need to meet specific conditions and justifications for maintaining the original FHA loan.