How to Remove PMI From Your Mortgage

What PMI is, and who pays it

PMI protects the lender, not you. It applies to conventional loans when the down payment is under 20%, and it is priced from two things: your credit score and your loan-to-value ratio. Across this site's rate card that is a range of about 0.16% to 2.48% of the loan balance a year.

It is not the same product as FHA mortgage insurance, which has its own upfront fee and a much longer life, and it is not the VA funding fee. The loan-type switch in the calculator prices all three so you can see the difference on the same house.

The monthly rate is not negotiable line by line — it comes off the lender's rate card — but it is driven hard by credit score, so improving a score before you apply is worth real money every month.

The three deadlines in the Homeowners Protection Act

The Homeowners Protection Act of 1998 sets the rules for borrower-paid PMI on a primary residence. It gives you three separate dates, and they are measured against the original value of the home and the original amortisation schedule — not today's market value, and not your extra payments.

• 80% LTV — you can ask. Once the balance reaches 80% of the original value you may request cancellation in writing. The loan must be current and the payment history reasonable.
• 78% LTV — it must stop. When the balance reaches 78% of the original value on the original schedule, the servicer must terminate PMI automatically. No request, no appraisal, no fee.
• 77% LTV or the midpoint — the backstop. If the automatic rule is missed for any reason, PMI must end at the midpoint of the amortisation term.

Everything is compared against the original number, which is why appreciation alone does not end PMI — but it can get you through the 80% door early, on the strength of an appraisal.

How long that actually takes on minimum payments

At today's 7.32% rate, a 30-year loan amortises slowly at the start. On a $360,000 loan with 10% down, minimum payments cross the 78% line at about month 119 — roughly 9.9 years into the loan. On the way there you would have paid about $14,868 of PMI.

That is the argument for attacking it rather than waiting. Every extra dollar of principal brings the cancellation date forward, because the rule is triggered by the balance, not by the calendar.

Four ways to get there faster

• Pay extra principal. The 78% rule is a deadline, not a floor. Any servicer will terminate PMI earlier if the balance actually reaches the threshold, and the calculator's extra-payment field shows the month moving.
• Request cancellation at 80% of today's value with an appraisal. If home values have risen, an appraisal can show you at or below 80% years before the schedule would, and a written request is then usually granted.
• Refinance. A new loan at 80% or less of the appraised value carries no PMI at all. This is often the fastest route, and it becomes clearly worthwhile when rates have also fallen — the refinance calculator prices the break-even.
• Recast rather than refinance. A lump-sum principal payment plus a recast lowers the balance and the payment without a new loan, a new rate or closing costs. Not every servicer offers it, and some charge a small fee.

What happens to your payment when it ends

PMI is one of the four components of PITI, so removing it drops the payment by exactly the PMI amount. Principal, interest, property tax and insurance are untouched. On this loan that is $126 a month — and because the tax and insurance parts of an escrowed payment usually rise over time, the month PMI ends is often the only month in ten years where a mortgage payment goes down.