How to Get Rid of Your Private Mortgage Insurance

If you put less than 20% down on your house, your lender will insist that you pay Private Mortgage Insurance (PMI). This type of insurance doesn’t protect you; it protects the lender. If you default on your mortgage, the lender receives payment for the loan given to you. That way, the lender doesn’t lose as much money if you don’t pay your mortgage.

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In most cases, PMI is added to your mortgage payment. You make the premium payments as a way to protect the lender for taking a chance on you, since you didn’t put a large down payment on your home. The good news is that PMI can be canceled once you meet certain requirements. The one except to this rule is PMI on FHA loans. As of June 3, 2013, most FHA loans will require mortgage insurance for the life of the loan.

When You Can Stop Paying PMI

According to the Homeowners’ Protection Act, which applies to those who purchased homes after July 29, 1999, lenders are required to automatically cancel your PMI after your have paid off your loan to a point that only 78% of the balance remains. However, it is possible for you to have your PMI canceled before that, as long as you take the initiative. You can ask your lender to cancel the PMI when your mortgage balance is down to 80% of the home’s value. However, be aware that the individual requirements of the lender might mean you are rejected.

As you work to get rid of your PMI, here are some of the steps to follow:

  1. Contact your lender: Request guidelines for canceling PMI from your lender. Realize that the guidelines actually come from the insurer, but you will almost never deal with the insurer. Try to get the guidelines for canceling PMI in writing so that you have a plan to follow.
  2. Home appraisal: You will need your home’s current market value in order to have your PMI canceled. Keep in mind that your home’s market value is not the same as the value used by your county to assess your taxes. You will need to pay for appraisal. Use an appraiser who’s opinion your lender is likely to respect.
  3. Figure out your current LTV: You can figure out your loan-to-value by dividing how much you still owe on your home to its current value. So, if you owe $150,000, and your homes value is $190,000, your LTV is .789, or 79%. That means that you can at least ask to have your PMI canceled.

What Happens if Your Lender Says No?

According to the law, the lender has to cancel the insurance when you have paid your loan down to 78% of the amount borrowed. So, you can wait for that benchmark to be released. However, it is possible for you to ask for the lender to reconsider. You should ask in writing.

Write a polite letter, and have it delivered certified mail (keep the receipt proving the lender received your correspondence), requesting that the lender take action. Include documentation of the home’s appraisal, as well as point out that you have made your payments on time. You can bolster your case by pointing out that you are a low default risk, since you have been making regular, on-time payments for years.

You want to keep copies of the letters, and the proof that your lender received them, for future purposes. In some cases, lenders and their insurers move slowly (rather than saying no) in order to keep charging you PMI. If you feel that you are meeting the guidelines for cancelation of PMI, you can actually take the lender to small claims court in order to force action on your request. This is where having copies of the lender’s guidelines, in writing, and the correspondence exchanged with the lender, comes in handy.

You don’t have to pay PMI forever. Pay attention to the value of your home, and the rate at which you are paying down your mortgage. You can save money in the long run by exercising your rights.

Photo by bobcat rock.

About the Author

By , on May 28, 2013
Miranda
Miranda is a freelance writer and professional blogger, specializing in financial topics. She has written for a number of financial web sites, and her work has been linked to by many publications, online and off. Miranda's blog is Planting Money Seeds.

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{7 Comments}

  1. The appraisal seems to factor in very little in comparison to payment history, which works to both extremes for many families in this situation. Excellent information here.

  2. I remember reading about being able to eliminate the PMI at the 20% mark when we purchased our current house about 3 years ago. It is one of the reasons that some financial planners tell you to always put down 20% on your house when you buy it. You end up saving on nice chuck of change on not having the PMI payments.

  3. David W says:

    The law states that PMI has to be automatically cancelled when the loan is originally *scheduled* to drop below 78%, not necessarily when you actually reach that point, say by paying extra on the loan. You can request it earlier if the balance is low enough, but then it depends on the appraisal and payment history.

    In our case the scheduled date was a year after we actually got to 78%, and the lender gave us a hassle when I tried to get it cancelled despite a perfect payment record and a history of paying around 6x principal for several months ahead of that time. We had refinanced within the last 6 months, and had an appraisal from then, but they refused to take it saying that they only accept appraisals from their approved company.

    We decided to just keep paying PMI until the scheduled date since it was cheaper to pay 12 months of PMI compared to the appraisal cost. We’ll have it paid off 100% in a few years and won’t ever have to deal with PMI again.

    • Scott says:

      Thank you for pointing this out. I went rounds with my lender about removing PMI cen though I was at 75%. I wasn’t scheduled to reach 78 for over 3 more years. In the end I refinanced, dropped the PMI, got a superb interest rate and it only cost me $400 more than the appraisal would have.

  4. Angella says:

    On our last house our lender (PNC, ugh!) refused to remove PMI, despite us being well below 78%. Every time we called or wrote a letter, there was a different excuse. I hope our new lender will be easier to work with when the time comes.

  5. Josh says:

    We put 5% down on our house and aggressively paid it down for 6 months to get rid of PMI. It is a great feeling to not have to pay that ‘tax’ on top of the mortgage payment. Now I am able to invest that same money in other ways like bitcoin mining which in my experience has a monthly ROI of 30%+. Google ‘coin mining rigs’ to see what I’m referring to. It is 10% of my portfolio for now and I have a feeling will be the most profitable investment of mine to date.

  6. Michelle says:

    This is very good to know! We currently pay PMI on our house.

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