How to Remove PMI from Your Mortgage

Everything You Need to Know About PMI and How to Get Rid of It

If you put down less than 20% when purchasing your home, chances are you're paying private mortgage insurance (PMI). While PMI helps you buy a home with a smaller down payment, it also adds to your monthly mortgage payment. The good news? You can eliminate PMI once you've built enough equity in your home. Here's how PMI works and how to get rid of it.

Key Takeaways:

• PMI is generally required when your down payment is less than 20% of the home’s value.

• PMI is automatically canceled when your loan-to-value (LTV) ratio hits 78%.

• You can request PMI removal at 80% LTV.

• You may reach 80% LTV sooner if your home’s value rises or you make extra payments.

What is Private Mortgage Insurance (PMI)?

PMI is a type of insurance that protects your lender in case you default on your loan. Typically, borrowers who put down less than 20% of the home’s value will be required to pay PMI. The cost varies based on your loan-to-value ratio and credit score but usually falls between $30 and $70 per $100,000 of the loan amount. While PMI can make buying a home more affordable upfront, it’s a cost you likely want to eliminate once you build enough equity.

When is PMI Automatically Removed?

Your lender is required by law to remove PMI once your loan balance reaches 78% of the original purchase price of your home, assuming you’ve been making timely payments. This automatic cancellation is set to occur once you’ve built 22% equity. The exact date of removal should be provided in the PMI disclosure you received when closing on your loan.

In addition to this, your lender must cancel PMI when you hit the midpoint of your loan term. So, for a 30-year mortgage, PMI will be removed after 15 years, even if your LTV hasn’t reached 78%.

How to Request PMI Removal at 80% LTV

You don’t have to wait for PMI to drop off automatically. You can request removal earlier if your loan balance has dropped to 80% of the home’s original value, either through regular payments or by making extra principal payments. Your lender may ask for proof of your home’s current value through an appraisal, especially if your home’s value has increased.

Speeding Up PMI Removal

There are ways to speed up the process of removing PMI:

• Extra Payments: By paying down your loan faster, you can reach 80% LTV quicker.

• Increase Home Value: Improvements or rising market values can boost your equity. You can obtain an updated appraisal through our Panza Home Group’s Seller Report to see if your home's value has increased. Access your personalized report here.

Refinancing to Eliminate PMI

If your home has appreciated significantly, refinancing can help you get rid of PMI. As long as your new loan has an LTV of 80% or lower, PMI won’t be required. Keep in mind that refinancing involves closing costs and potentially different interest rates, so be sure the savings from removing PMI outweigh any refinancing costs.

Important Considerations

When preparing to remove PMI, be sure to check with your lender for specific requirements. Some lenders may require you to be current on payments or meet other criteria to cancel PMI. Additionally, if home prices have declined, a new appraisal might show that you haven’t reached the necessary equity, potentially delaying removal.

Final Thoughts

PMI can be a costly addition to your monthly mortgage payment, but fortunately, it doesn’t last forever. By staying aware of your loan balance and home value, you can request PMI removal once you hit 80% LTV or wait for it to automatically drop off at 78%. Taking proactive steps like making extra payments or seeking an updated appraisal through the Panza Home Group’s Seller Report can help you save money faster and make homeownership more affordable.