If you bought with less than twenty percent down on a conventional loan, you are paying private mortgage insurance every month. It protects your lender, not you, and it is one of the few line items on your payment you can actually eliminate.
Plenty of homeowners are paying it longer than they need to, simply because nobody told them how it comes off.
Two automatic paths
Federal law gives you two rights on conventional loans.
You can request cancellation once your loan balance reaches 80% of the original value of the home. Original value, meaning the lesser of your purchase price or the appraised value when you bought. Not what the house is worth today.
Your servicer must also automatically terminate PMI when your balance reaches 78% of original value, based on your original amortization schedule.
Notice the difference. The 80% version requires you to ask. The 78% version happens on its own. Homeowners who never ask pay for the gap between those two points, which can be a year or more of premiums for no reason.
What your servicer will want
Cancellation at 80% is not automatic just because you hit the number. Servicers generally require a good payment history, and they may require confirmation that the property value has not declined and that there are no additional liens against the home.
Some will ask for a new appraisal or valuation at your expense.
Call your servicer and ask specifically what their requirements are. Get it in writing if you can.
The path most people miss
Everything above uses original value. But in a market where values have risen, your actual equity may be well ahead of your amortization schedule.
Many servicers will consider removing PMI based on current market value rather than original value, generally after the loan has been in place for a minimum period and typically requiring a new appraisal that you pay for.
This is where a few hundred dollars can eliminate a monthly premium for the remaining life of the loan. Run the math. If your premium is meaningful and you believe your home has appreciated, an appraisal can pay for itself quickly.
Requirements vary by servicer and by how long you have held the loan, so ask before ordering anything.
Paying down to get there
You can also accelerate. Extra principal payments move you toward the threshold faster than your schedule would.
Homeowners close to the line sometimes find that a single lump sum payment crosses it, eliminating a monthly premium immediately. Whether that is the best use of the money depends on your situation, but it is worth calculating.
FHA works differently
Important distinction. FHA loans carry mortgage insurance premiums, not PMI, and the rules are not the same.
Depending on when you took the loan and how much you put down, FHA mortgage insurance may remain for the life of the loan regardless of how much equity you build.
For many FHA borrowers, the only way out is refinancing into a conventional loan once they have sufficient equity and credit. That is a full refinance with full closing costs, so it needs to be evaluated on break-even the same as any other refinance.
Where to start
Pull your most recent mortgage statement and find your current balance. Compare it to your original purchase price. If you are near 80%, call your servicer this week.
If you are on an FHA loan and have built real equity, that is worth a conversation about whether refinancing makes sense. Send us your statement and we will look at it.
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