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.
You can remove PMI from your monthly payment after your home reaches 20% in equity, either by requesting its cancellation or refinancing the loan. The specific steps you'll take to cancel your PMI will vary depending on the type of insurance you have.
Divide the loan amount by the property value. Then multiply by 100 to get the percentage. If the result is 80% or lower, your PMI is 0%, which means you don't have to pay PMI.
Increase Your Home's Value and Get an Appraisal
Contact your loan servicer if you think this may be the case. Lenders might be willing to cancel your PMI if you have 20% equity based on the home's current value. However, you may need to pay for a home appraisal first.
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.
The loan has not been more than 60+ days past due in mortgage payments within the last two years or 30+ days past due within the last year. There has not been a property value decline based on the actual sales price or original appraised value.
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. For more information about canceling your PMI, contact your mortgage servicer.
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.
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.
Even if you don't ask your lender to cancel PMI, your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. You also need to be current on your payments on the anticipated cancellation date.
The loan-to-value ratio is the amount of the mortgage compared with the value of the property. It is expressed as a percentage. If you get an $80,000 mortgage to buy a $100,000 home, then the loan-to-value is 80%, because you got a loan for 80% of the home's value.
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.
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.
If home values have gone up in your area or you've made a lot of improvements to your home, you could have more than 20% equity based on the home's current value. Providing the loan-to-value ratio with a new appraisal value meets the lender's requirements, you may be able to get PMI taken off.
What Does a High PMI Reading Indicate? The Purchasing Managers' Index reading can range between 0 and 100. If the index reading is higher than 50, then it indicates an economic expansion. This means that the closer the reading is to 100, the higher the degree of positive economic growth.
Even if you don't ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments.
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.
Generally, you can request to cancel PMI when you reach at least 20% equity in your home. You might reach the 20% equity threshold by making your payments on time per your amortization schedule for loan repayment.
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. FHA loans of 15 years or less have the same criteria, minus the 5-year requirement.
Yes, if the value of your home has increased enough to reduce your loan-to-value ratio (LTV) to 80% or less, refinancing can remove your PMI.
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.
Your PMI payments are typically added to your mortgage payments along with your property taxes and homeowner's insurance payments. Your PMI is recalculated yearly, so it will go down every year as you pay off your loan balance.
The Bottom Line. PMI is expensive. Unless you think you can get 20% equity in the home within a couple of years, it probably makes sense to wait until you can make a larger down payment or consider a less expensive home, which will make a 20% down payment more affordable.
Anything above 80% is considered a high LTV ratio. It usually means you'll need to pay for mortgage insurance or get a piggyback loan. Even with an LTV of 75% or higher, you may pay a higher interest rate or have higher closing costs.
Calculating the monthly cost for a $50,000 loan at an interest rate of 8.75%, which is the average rate for a 10-year fixed home equity loan as of September 25, 2023, the monthly payment would be $626.63. And because the rate is fixed, this monthly payment would stay the same throughout the life of the loan.