Private Mortgage Insurance: What It Costs and How to Get Rid of It Sooner
PMI protects the lender, not you, and on most conventional loans it can be removed. Here is how the 80% and 78% rules work, how long it takes on a typical loan, and how extra payments speed it up.
If you put less than 20% down on a conventional mortgage, the lender will usually require private mortgage insurance (PMI). It is one of the more frustrating costs of homeownership because it protects the lender, not you. If you default and the home sells for less than the loan, PMI helps cover the lender's loss.
The good news is that PMI on a conventional loan is usually temporary. Federal law sets out when it must end and when you can ask to end it, and you can often reach that point years sooner than you expect.
The short version
- PMI is typically required on conventional loans with less than 20% down. It is usually paid monthly with the mortgage.
- Under the federal Homeowners Protection Act, for most conventional loans on a primary residence:
- You can request cancellation when the balance reaches 80% of the home's original value, if you meet certain conditions.
- PMI must end automatically when the balance is scheduled to reach 78% of original value, if you are current on payments.
- On our hypothetical loan with 10% down, the scheduled 80% point arrives at about month 95 (just under 8 years) and automatic termination at about month 109.
- Paying $200 extra a month toward principal moves the 80% point up to about month 63, more than two and a half years sooner.
- FHA loans use a different kind of mortgage insurance with different removal rules.
What PMI costs
PMI pricing depends on the loan-to-value ratio, credit score, loan type, and the insurer. It is often expressed as an annual percentage of the loan amount. For illustration, at 0.5% a year on a $342,000 loan:
Real rates can be considerably lower or higher. Your Loan Estimate and Closing Disclosure show your actual PMI cost, and they also show when it is expected to end.
How the removal rules work
These rules come from the Homeowners Protection Act and generally apply to conventional mortgages on primary residences closed after mid-1999. Lenders and investors can have additional requirements. Your servicer's disclosures explain the specifics for your loan.
Requesting cancellation at 80%
You can ask the servicer to cancel PMI when your principal balance reaches 80% of the original value of the home. Original value generally means the lower of the purchase price or the appraised value at the time of the loan. You can reach this point by following the regular schedule or sooner by making extra payments. Conditions commonly include:
- a written request;
- a good payment history;
- being current on payments;
- no second liens, such as a home equity loan;
- possibly evidence that the property hasn't lost value, such as an appraisal.
Automatic termination at 78%
PMI must end automatically on the date your balance is scheduled to reach 78% of original value under the original amortization schedule, as long as you are current. Note the word scheduled. Extra payments get you to the 80% request point sooner, but the automatic date is based on the original schedule.
Final termination at the midpoint
Even if neither threshold is reached, PMI generally must end once you reach the midpoint of the loan's amortization period, if you are current.
The worked example
A hypothetical $380,000 home with 10% down, so a $342,000 loan, 30-year fixed at 6.5%. Monthly principal and interest is $2,161.67.
| Reaches 80% (request) | Reaches 78% (automatic) | |
|---|---|---|
| Regular payments | Month 95 (about 7.9 years) | Month 109 (about 9.1 years) |
| $200 extra per month | Month 63 (about 5.3 years) | Automatic date stays on original schedule |
Show the numbers behind this chart
| Months | |
|---|---|
| Request at 80%, regular payments | 95 mo |
| Request at 80%, +$200/mo | 63 mo |
| Automatic at 78% (scheduled) | 109 mo |
At $142.50 a month, ending PMI at month 63 instead of month 109 avoids about 46 months of premiums, roughly $6,500, in addition to the interest saved by the extra principal.
Using home value growth
If your home has risen in value, some servicers will consider removing PMI based on a current appraisal rather than the original value. This is generally an investor or servicer policy rather than a right under the federal law, and requirements vary. For example, a servicer may require that you've held the loan for a minimum period and that the balance be below a certain percentage of the new appraised value. You typically pay for the appraisal. Ask your servicer what its rules are before ordering one.
Significant home improvements that increase value can also matter, but documentation requirements vary.
Alternatives to monthly PMI
- Single-premium PMI: paid upfront at closing, sometimes by the seller or through a lender credit. It doesn't go away, because it's already paid, and it's generally not refundable if you sell or refinance early.
- Lender-paid mortgage insurance (LPMI): the lender pays the insurance in exchange for a higher interest rate. There is no separate PMI to cancel; the higher rate lasts until you refinance or pay off the loan.
- Piggyback loans: a second mortgage covers part of the down payment so the first mortgage is at 80%. This avoids PMI but adds a second loan, usually at a higher rate.
Each has trade-offs that depend on how long you expect to keep the loan.
FHA and other loan types
FHA loans use a mortgage insurance premium (MIP) with an upfront charge and an annual charge. Whether and when annual MIP can end depends on the loan's terms and when it was made; for many FHA loans it lasts for the life of the loan unless you refinance into a different loan type. VA and USDA loans have their own fee structures. Check the rules that apply to your specific loan.
Steps to take
- Find your PMI disclosure from closing. It shows the expected cancellation dates.
- Check your current balance against 80% of original value.
- If you're close, consider extra principal payments to reach it sooner.
- When you reach 80%, send a written request to your servicer and ask what it needs.
- If your home has gained value, ask about removal based on a new appraisal.
- Mark the automatic termination date on your calendar and confirm PMI actually stops.
The takeaway
On most conventional loans, PMI is temporary. You can request removal at 80% of original value, it ends automatically at the scheduled 78% point, and extra principal payments can bring the request date years closer. If your home has appreciated, ask your servicer whether a new appraisal could get you there even sooner.
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