Buy real estate that will appreciate sharply. One effective method on how to avoid PMI involves purchasing property that is likely to appreciate in value. Once your home's value increases sufficiently to lower your loan-to-value ratio (LTV) below 80%, some banks may permit you to request PMI cancellation.
Once the home loan's LTV value reaches 80 percent, PMI is usually no longer required and can be requested to be removed from the monthly mortgage payment. Once a mortgage drops to 78 percent, the federal Homeowners Protection Act requires the lender to cancel PMI automatically.
Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.
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.
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).
Your home equity needs to be at least 20%, or you will need to pay for PMI. The good news is that you can request that your lender remove PMI once the principal balance of your loan reaches 80% of the original value of the property. To request removal, you will need to submit a request, in writing, to your lender.
Dear (Servicer Name): I am requesting to cancel my private mortgage insurance. The coverage is with (Mortgage Insurance Company Name) and my mortgage loan number is (loan number). I have included documentation to support why I think the equity in my home has reached or exceeded 20%.
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.
A good payment history. The rule is no payments 30 days late in the past 12 months and no 60-day late payments in the previous 24 months. Timely payments count when it comes to getting rid of PMI. Late payments can put you in a high-risk category, making it harder to cancel.
For loans that are less than two years old, there must be substantial improvements made to the home that increased the value in order to use the current market value. “Substantial improvements” are renovations that substantially improved the property value or substantially extended the useful life of the home.
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.
In most cases, removing mortgage insurance is a good thing. It will lower your monthly payment. Just remember to do some research before you make a decision. Depending on how you remove your mortgage insurance, you may have to consider other factors, such as refinancing expenses.
For a little more than a decade, PMI was tax deductible for homeowners who met eligibility requirements and itemized their deductions. Since the 2022 tax year, it's no longer possible to take deductions on new mortgage insurance payments, as the PMI deduction has expired.
The higher your LTV ratio, the higher your PMI payment. Your credit score: Your credit history and corresponding credit score play a major role in the cost of PMI. For example (using the Urban Institute figures), say someone is buying a $300,000 property with a 3.5 percent down payment.
If you can easily afford it, you should probably put 20% down on a house. You'll avoid paying for private mortgage insurance, and you'll have a lower loan amount and smaller monthly payments to worry about. You could save a lot of money in the long run.
If you buy a $300,000 home, you could be paying somewhere between $600 – $6,000 per year in mortgage insurance. This cost is broken into monthly installments to make it more affordable. In this example, you're likely looking at paying $50 – $500 per month.
You can request PMI cancellation before it automatically terminates — when the principal loan balance reaches 80% of the home's original value (the date you're expected to reach 80% should be listed on your PMI disclosure form or provided by your lender).
(PMI is not the same as credit life insurance, which pays off a consumer loan or mortgage if the borrower dies.) Under the new law, with certain exceptions, PMI automatically will be terminated if the borrower accumulates 22 percent equity in the home and is current on mortgage payments.
Ask to cancel your PMI: If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your mortgage servicer cancel your PMI.
Simply put: if you have an FHA loan term of more than 15 years, have been paying it for at least 5 years, and have an LTV ratio of 78% or less, PMI can be removed from the loan.
You typically need to pay PMI until you have built up 20% equity in your home. PMI should end automatically when you have 22% equity in your home. In some cases, you can stop paying PMI at the midpoint of the mortgage, regardless of the equity amount.
Not later than thirty days after the termination date that would apply in the case of BPMI, the servicer must provide to the borrower a written notice indicating that the borrower may wish to review financing options that could eliminate the require ment for LPMI in connection with the mortgage.
The amount you pay in PMI is a percentage of your principal mortgage loan amount. It is not impacted by appraisal. However, if your home increases in value to the point that you have gained substantial equity, a home appraisal will help prove to your lender that you qualify for PMI removal.
But in general, the cost of private mortgage insurance, or PMI, is about 0.5 to 1.5% of the loan amount per year. This annual premium is broken into monthly installments, which are added to your monthly mortgage payment. So a $300,000 loan would cost around $1,500 to $4,500 annually — or $125 to $375 per month.
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.