How to Get Rid of PMI: A Comprehensive Guide

Many homebuyers have to pay private mortgage insurance (PMI) if they put down less than 20% for a conventional mortgage. While PMI can be relatively inexpensive, it’s still an extra fee that only benefits your lender, not you.

Fortunately, PMI isn’t permanent. You can get rid of PMI through mortgage refinancing, paying down your principal, or simply waiting for it to fall off. Each option has its pros and cons, so weigh them carefully to see which works best with your financial situation.

What is PMI and why is it required?

Private mortgage insurance is designed to protect the lender in case you default on the loan — that is, you stop making payments. It shields the lender against any financial losses incurred in the event of foreclosure.

You’ll typically need to get PMI if you put less than 20% down on a conventional home loan. PMI may also be required if you use a conventional loan to refinance a property with less than 20% equity.

Most lenders will add PMI to your monthly mortgage payment until you either request a PMI removal or it naturally falls off.. However, some will ask you to pay the full PMI premium upfront at closing. This means you won’t have to pay it each month, but the downside is that you might not get a refund if you choose to sell or refinance your home.

“PMI is an added expense that has no benefit for the homeowner. Dropping it will lower your monthly mortgage payment and free up cash for other financial goals (or just reduce your overall expenses),” says Steven Parangi, an attorney, licensed mortgage loan originator, and owner of Alpine Mortgage Services, LLC. “By getting rid of PMI more of your mortgage payment goes to reducing your principal balance and you’ll build equity in your home much faster.”

That said, PMI can make it easier to qualify for financing when you otherwise wouldn’t have. That’s because it offers an alternative to having to save up for a 20% down payment. 

If you have PMI, check your loan estimate or closing disclosure to see how much you’re paying each month. It usually costs between 0.5% and 1% of the loan amount, but it can vary based on factors like your credit score, down payment amount, loan type, and repayment term.

PMI applies to conventional loans only. Government-backed loans, like FHA loans, may have their own mortgage insurance that works differently from PMI.

When can PMI be removed automatically?

One of the simplest ways to remove private mortgage insurance is to wait for the lender to automatically remove it when you reach sufficient equity. How long this takes depends on your repayment schedule, the property’s value, and your down payment.

Your lender will cancel PMI once you’ve reached 22% equity in your home (based on your home’s original value). The faster you pay down your mortgage, the sooner you’ll get to this point. You must be current on all payments for your lender to eliminate PMI.

Say you took out a conventional loan for a home valued at $350,000. If you put 10% down ($35,000), your loan amount would be $315,000. You must pay off $77,000 (22% of your home’s value) for automatic PMI removal.

Put another way, your lender will cancel PMI once your loan-to-value ratio (LTV) — the amount owed compared to the property’s current value — is 78%. On a $350,000 home, that means your lender must automatically eliminate PMI once your loan balance is $273,000.

Private mortgage insurance cancellation may also occur at the midway point of your loan’s term — even if you haven’t reached 22% equity. On a typical 30-year loan, the midpoint would be after 15 years. This typically only occurs on mortgages with:

• An interest-only period
• A balloon payment
• Principal forbearance

How can you request PMI cancellation?

If you’re tired of waiting for your lender to remove PMI, you can always ask to remove it once you reach 20% home equity. This applies to both purchases and refinancing and is based on your home’s original value.

You can check your PMI disclosure form, which you should receive at closing, to find out when you’ll reach 20% equity. If you don’t have this form, contact your loan servicer. If you’ve paid extra on your mortgage, you may be able to cancel PMI ahead of schedule.

You’ll need to meet the following criteria to cancel PMI:

• Request it in writing: You’ll need to submit a written cancellation request to your lender.
• Have good payment history: All mortgage payments must be current.
• No junior liens: You must certify that you don’t have any liens or second mortgages on the property.
• Home value hasn’t declined: You must prove — usually through an appraisal — that your property value hasn’t fallen below its original value. If it has, you may have to keep PMI longer than anticipated.

“While not exactly ‘creative,’ paying down your mortgage principal aggressively will reduce your loan balance faster and get you to 80% LTV,” Parangi says. “This can be done by making extra principal payments or refinancing into a shorter term loan with higher payments. Making one extra payment a year applied to your principal will make a difference over the life of the loan.”

Can refinancing help eliminate PMI?

You might be able to get rid of PMI through mortgage refinancing. If you’re using a conventional loan, you’ll need to have at least 20% equity. Otherwise, PMI may still be required.

“Refinancing into a new loan can be used to get rid of PMI if the market value of the home has appreciated or if you have paid down your mortgage enough,” Parangi says. “If you refinance into a 80% LTV loan you may be able to drop your PMI.”

When you refinance a mortgage, your lender — whether it’s the same one or a different one — will typically order an appraisal. If your home has appreciated since the original loan, you could end up with more equity than you expected.

Be aware that refinancing a mortgage isn’t for everyone. You’ll need to consider the new loan’s interest rate, terms, and other factors to decide whether it makes sense for you. For example, if you get a much shorter term or higher APR, you could end up with a larger monthly payment — even without PMI.

What are other strategies to get rid of PMI?

There are several other ways to get rid of PMI, including:

• Make additional or larger monthly payments: By paying more each month, you can reach 20% equity faster. This can help you remove private mortgage insurance sooner, while chipping away at your overall loan. It could even save you money in interest over time.
• Order a new appraisal: You don’t have to refinance to get a new appraisal. If you believe your home is worth significantly more than it was, get a professional appraisal done. This will tell you — and your lender — what your home is valued at. If you were already close to the 20% mark, the appraisal might even push you over the edge. Be sure to contact your lender or loan servicer once it’s done so they can take it into consideration.
• Consider upgrading your property: Renovating your home costs money, but it could increase its value. If you were already planning on updating your property, request a new appraisal after completing the project to see if you’ve reached 20% equity.
• Check your loan’s terms: Freddie Mac, Fannie Mae, or other loan investors will have their own PMI removal rules. Look into the terms of your PMI to see if there’s an early cancellation option for you.

“Each lender or loan servicer has their own requirements and policies for removing PMI,” Parangi says. “Always review your loan documents and contact your servicer to know the exact steps.”