What Is Private Mortgage Insurance (PMI)?
Private mortgage insurance protects the lender(not you) if you default on your mortgage. It's required on conventional loans when your down payment is less than 20% of the home's purchase price. PMI typically costs 0.5%–1.5% of the loan amount annually, added to your monthly payment.
On a $350,000 loan at 0.85% PMI, you're paying about $248 per month purely to insure the lender's risk. Over the years until you reach 20% equity, that adds up to thousands of dollars. The good news: unlike FHA mortgage insurance, conventional PMI is temporary. Once you build enough equity, you can get rid of it.
How to Remove PMI: Three Paths
1. Request removal at 80% LTV. Once your loan balance drops to 80% of the originalproperty value (or current appraised value in some cases), you can write to your lender requesting PMI cancellation. You must be current on payments and may need to pay for a new appraisal ($300–$500).
2. Automatic cancellation at 78% LTV. Under the Homeowners Protection Act (HPA), your lender mustautomatically cancel PMI when your balance reaches 78% of the original purchase price, based on the original amortization schedule. You don't need to do anything, but many borrowers don't realize they can request removal 2% sooner.
3. Refinance. If your home has appreciated 10%+ since purchase, refinancing into a new loan at or below 80% LTV can eliminate PMI entirely. This approach makes sense when rates have dropped or your home value has risen enough that the savings outweigh refinancing costs.
How to Cancel PMI Faster
Make extra principal payments. Even an extra $200/month toward principal can shave years off your PMI timeline. Use our calculator above to see the "lump sum to reach 80%" amount. If you have that cash available, you can eliminate PMI immediately.
Get a new appraisal.If your home has appreciated since purchase (renovations, market growth), a new appraisal could show a current value that puts your LTV below 80%. Some lenders allow cancellation based on current value rather than original purchase price, especially if you've owned the home for 2+ years.
Home improvements that add value. Kitchen and bathroom renovations, adding a bedroom, or finishing a basement can increase your appraised value. Focus on improvements with high return-on-investment in your market.
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Frequently Asked Questions
- When does PMI automatically cancel?
- PMI automatically cancels on conventional loans when your loan-to-value ratio reaches 78% of the home's original value, based on the amortization schedule. You can request removal at 80% LTV if home values have risen, but you'll need a fresh appraisal ($400 to $700) to prove it. FHA loans do not allow PMI removal except by refinancing into conventional.
- How do I reach 80% LTV faster?
- Two ways. First, along the amortization schedule. You just make normal payments until your balance hits 78% of the original price. On a $400k home with 10% down, that takes about 9 years at 7% rate. Second, via new appraisal. If the home has appreciated, the new appraised value lowers your current LTV. A $450k appraisal on the same $360k loan gives you 80% LTV today rather than waiting years.
- How much does the appraisal cost and is it worth it?
- The appraisal costs $400 to $700 depending on your market and loan type. You pay it out of pocket. If the appraised value pushes you past 80% LTV, your lender must remove PMI and the appraisal pays for itself in 2 to 4 months of saved PMI. If the appraisal comes in too low, you've lost the fee, which is why you should only order one if you're reasonably sure home values in your area have risen.
- Does FHA allow PMI removal?
- No. FHA mortgage insurance premiums last for the life of the loan when your down payment is less than 10%. If your down payment was 10% or more, MIP drops off after 11 years. The only way to eliminate FHA MIP in other cases is to refinance into a conventional loan. This makes sense once you have 20% equity and credit score 700+.
- How much is PMI typically?
- Average PMI on a conventional loan is 0.3% to 1.5% of the loan amount per year, billed monthly. On a $400k loan, that's $100 to $500/month. Your specific rate depends on credit score and LTV. A 760 credit score at 90% LTV pays roughly 0.3%, while a 620 credit score at 97% LTV pays closer to 1.2%. Lender-paid PMI (LPMI) rolls it into a higher interest rate instead.
- Should I pay down principal to eliminate PMI faster?
- Usually yes, but do the math. On a $400k loan at 7% with $300/month PMI, paying down $20,000 extra to eliminate PMI saves $3,600/year in PMI plus a small interest reduction, a return of roughly 18% on the $20k. Hard to beat in any other investment. Exception: if you're about to refinance anyway, just wait and let the new lower LTV trigger removal.