How to Get Rid of PMI

Buying a home is one of the biggest financial milestones you’ll ever reach, and with it comes a variety of upfront and ongoing costs. If your down payment is less than 20% when financing with a conventional loan, you may have noticed the extra charge on your monthly mortgage payments labeled Private Mortgage Insurance (PMI).

While PMI helps make homeownership possible by allowing buyers to purchase a home with a smaller down payment, most buyers want to avoid paying more than necessary. The good news is that PMI isn’t always a permanent expense. Depending on your loan and how much equity you’ve built in your home, you may be eligible to get rid of PMI once you meet certain requirements.

In this guide, we will go over what a PMI is, why it’s required, and the different ways you can get rid of PMI from your monthly mortgage payments.

What is PMI?

Private mortgage insurance (PMI) is a type of mortgage insurance policy that aims to protect lenders from a buyer defaulting on their loan. A PMI is typically required when you purchase a home with a conventional loan and make a down payment of less than 20%.

Although many buyers view PMI as an added expense, it serves an important purpose. Rather than waiting years to save a 20% down payment, PMI allows many buyers to qualify for a mortgage sooner and begin building equity through homeownership.

PMI vs. MIP: What’s the Difference? 

One of the most common questions homebuyers ask is what is the difference between PMI and MIP? A mortgage insurance premium (MIP) is a financial safeguard put in place to protect lenders if borrowers default on their mortgage, specifically, FHA loans.  

While both are forms of mortgage insurance, they apply to different types of loans and follow different rules.

How Can You Get Rid of PMI?

There isn’t one single way to remove PMI. Depending on your mortgage, your home’s value, and how much equity you’ve built, there are several possible paths to getting rid of PMI.

Request PMI Removal at 80% LTV

Many homeowners become eligible to request PMI cancellation once the unpaid principal balance on their mortgage reaches 80% of the home’s original value.

However, reaching 80% LTV doesn’t automatically remove PMI. You’ll typically need to request cancellation from your loan servicer and satisfy any applicable requirements. These may include being current on your mortgage payments and demonstrating that there are no additional liens on the property.

Because individual loan requirements can vary, it’s a good idea to contact your loan servicer if you believe you’ve reached this milestone.

Automatic PMI Removal at 78% LTV

If you don’t request PMI cancellation yourself, federal law generally requires lenders to automatically terminate PMI once your mortgage balance reaches 78% of the home’s original value, provided you’re current on your mortgage payments.

For many homeowners, this means PMI may eventually come off automatically without submitting a request. Even so, it’s worth keeping track of your loan balance so you understand when this milestone may occur.

Knowing where you stand can also help you determine whether you qualify to remove PMI even earlier.

Home Appreciation

In some cases, rising home values may allow homeowners to eliminate PMI earlier than expected.

If your home market value has increased significantly since you purchased it, or you’ve completed improvements that meaningfully increase its value, you may have built equity faster than your mortgage balance alone would suggest.

Depending on your loan requirements, your loan servicer may allow a new appraisal to determine whether your home’s current value supports PMI removal.

Not every homeowner will qualify under this option, and eligibility depends on your loan and investor guidelines. If your home has appreciated substantially, it’s worth asking your loan servicer whether a new appraisal could help determine your eligibility.

Paying Down Your Mortgage Faster

If your goal is to get rid of PMI sooner, making additional payments toward your loan’s principal may help you build equity more quickly. Since your loan-to-value (LTV) ratio is based on the amount you still owe compared to your home value, reducing your principal balance faster may allow you to reach the required LTV for PMI removal sooner than scheduled.

Before making extra payments, confirm with your loan servicer that the additional funds will be applied directly to your principal balance. It’s also a good idea to ask how those payments may affect your PMI removal timeline.

Refinancing your Mortgage

For some homeowners, refinancing may be another way to eliminate PMI.

If your home‘s value has increased or you’ve built enough equity, refinancing into a new conventional loan may allow you to qualify without PMI. However, refinancing isn’t the right solution for everyone.

Before refinancing, consider factors such as:

• Your current interest rate compared to today’s market rates 

• Closing costs associated with a new loan 

• How long you plan to stay in your home 

• Whether the monthly savings outweigh the cost of refinancing 

Your loan officer can help you compare your options and determine whether refinancing or waiting to remove PMI is the better financial decision.

How Do You Know If You’re Eligible to Remove PMI?

Every homeowner’s situation is unique, but if you have a conventional mortgage, these questions can help you determine whether it may be time to contact your loan servicer.

Ask yourself:

• Is my mortgage a conventional loan? 

• Am I current on my mortgage payments? 

• Have I built at least 20% equity in my home based on my loan’s original value or my home’s current value, if applicable? 

• Has my home value appreciated significantly since I purchased it? 

• Have I made improvements that may have increased my home’s value? 

• Have I spoken with my loan servicer about my PMI removal options? 

Even if you think you’ve met the requirements, it’s always best to contact your loan servicer. They can explain the specific requirements for your loan and let you know what documentation, if any, is needed to begin the PMI removal process.

What Is LTV and Why Does It Matter?

One of the most important terms you’ll encounter when learning how to remove PMI is loan-to-value ratio, commonly called LTV.

LTV compares the amount you still owe on your mortgage to your home’s value. Lenders use this percentage to measure how much equity you’ve built in your home.

As your mortgage balance decreases—or if your home’s value increases—your LTV generally goes down.

For example:

• Home value: $500,000 

• Remaining mortgage balance: $425,000 

Your LTV would be 85%.

This number is important because it plays a major role in determining when you may be eligible to remove PMI from your conventional mortgage.

Is Paying PMI Always a Bad Thing?

It’s easy to think of PMI as just another monthly expense, but it’s important to remember why it exists.

For many homebuyers, especially first-time buyers, saving a 20% down payment can take years. PMI allows qualified buyers to purchase a home with a smaller down payment instead of delaying homeownership while they continue saving.

In many cases, the benefits of buying sooner—such as beginning to build equity, establishing roots in a community, and potentially benefiting from future home appreciation—may outweigh the temporary cost of PMI.

Rather than viewing PMI as money that’s “wasted,” think of it as a tool that may help you achieve homeownership sooner. Once you’ve built enough equity and meet your loan’s requirements, you may have the opportunity to remove it.

Frequently Asked Questions (FAQ) About PMI

While PMI can help make homeownership possible with a smaller down payment, it doesn’t have to be a permanent part of your mortgage. By understanding the ins and outs of a PMI, you can take steps toward lowering these additional costs as you embark on your homeownership journey.

If you’re wondering whether you qualify to remove PMI or planning to buy a home and want to understand your mortgage insurance options—a knowledgeable First Heritage Mortgage loan officer can help. Get started with a free consultation so we can walk you through your options and answer any questions so you make informed decisions that support your long-term homeownership goals.