If you are currently paying private mortgage insurance (PMI), you may be wondering when you can have it removed from your monthly mortgage payment.
For many conventional mortgages, federal law and investor guidelines provide several ways PMI may be cancelled or automatically terminated. The rules can vary depending on your loan, payment history, property value and mortgage servicer.
Important: The information below primarily applies to conventional loans with borrower-paid private mortgage insurance. FHA, VA and USDA loans have different mortgage insurance or funding-fee rules.
PMI Cancellation Based on the Original Home Value
Under the Homeowners Protection Act, homeowners with many conventional loans can request cancellation of PMI when the mortgage balance reaches 80% of the home’s original value.
In general, the borrower must:
- Request cancellation from the mortgage servicer.
- Be current on the mortgage.
- Have a satisfactory payment history.
- Meet the servicer’s requirements regarding subordinate liens, such as a second mortgage or home equity loan.
- Provide evidence, if required by the servicer, that the property’s value has not declined below its original value.
For a home purchase, the “original value” generally means the lower of the original purchase price or appraised value. For a refinance, it generally refers to the appraised value at the time of the refinance.
Automatic PMI Termination at 78%
For many conventional mortgages covered by the Homeowners Protection Act, the mortgage servicer must automatically terminate PMI when the loan is scheduled to reach 78% of the home’s original value, provided the borrower is current on the mortgage.
This is based on the scheduled amortization of the loan rather than simply the home’s current market value.
There is also a final termination provision tied to the midpoint of the mortgage’s original amortization period for certain loans that have not otherwise reached the automatic termination point.
Removing PMI Based on the Current Value of Your Home
Homeowners may also be able to request PMI cancellation based on appreciation in the home’s current market value. These rules are generally determined by the mortgage investor and servicer and may allow PMI to be removed earlier than it would be based solely on the original purchase value.
For many Fannie Mae and Freddie Mac conventional loans secured by a one-unit primary residence or second home, current-value guidelines generally require:
- 75% loan-to-value (LTV) or less when the mortgage is between 2 and 5 years old.
- 80% LTV or less when the mortgage is more than 5 years old.
- A satisfactory payment history and a current mortgage.
- An acceptable property valuation ordered through the mortgage servicer.
Investor and servicer requirements can differ, so homeowners should contact their mortgage servicer before ordering an appraisal independently.
What If You Have Made Significant Improvements?
For certain Fannie Mae and Freddie Mac loans, the normal two-year seasoning requirement may be waived when substantial improvements made by the homeowner have increased the property’s market value.
Examples may include renovations such as significant kitchen or bathroom improvements, additions or other work that substantially improves the property. Routine repairs and maintenance generally are not considered substantial improvements for this purpose.
The mortgage servicer will determine what documentation and property valuation are required.
FHA and Other Government Loans Are Different
Do not assume these conventional PMI cancellation rules apply to every mortgage.
FHA loans use Mortgage Insurance Premiums (MIP) rather than conventional PMI, and the length of time MIP is required depends on factors including when the FHA loan was originated, the original loan-to-value ratio and the loan term. VA and USDA loans also have different rules.
If you are unsure what type of mortgage insurance you have, your monthly mortgage statement or mortgage servicer should be able to help identify it.
Could You Be Eligible to Remove Mortgage Insurance?
If you are currently paying mortgage insurance, it may be worth reviewing your loan balance, original property value, current estimated value and how long you have owned the home.
Your mortgage servicer ultimately determines whether your existing mortgage qualifies for PMI cancellation. However, we are happy to help you understand your options and determine whether keeping your current mortgage or considering a refinance makes more sense.
Questions about your mortgage? Contact us here, or call (240) 670-5090.
Thinking about buying or refinancing? Pre-Qualify Here.
Mortgage insurance requirements are subject to federal law, investor guidelines, loan type and individual mortgage servicer requirements. Contact your mortgage servicer for requirements specific to your existing loan.
