Private mortgage insurance (PMI) on a conventional loan is not forever. In the US, the Homeowners Protection Act sets two milestones, and knowing them can be worth thousands.
The two milestones
- 80% of the original value: you can ask the lender in writing to cancel PMI once your balance reaches 80% of the home's original value (usually the purchase price). Lenders typically also want a good payment history and may ask for proof the home has not lost value.
- 78% of the original value: PMI must end automatically when the balance is scheduled to reach 78%, based on the original amortization schedule, as long as you are current on payments.
FHA loans work differently: with less than 10% down, the annual mortgage insurance premium usually stays for the life of the loan, and the common way out is refinancing into a conventional loan.
Example
$360,000 home, 10% down, $324,000 loan at 6.5% for 30 years: about $2,048 a month for principal and interest.
- 80% of $360,000 = $288,000. On the normal schedule the balance gets there after about 95 months (just under 8 years).
- 78% = $280,800, reached after about 109 months (around 9 years).
If PMI costs 0.7% of the loan a year, that is about $189 a month.
What extra principal does
Add $200 a month to principal from day one and the balance hits $288,000 after about 62 months instead of 95. Request cancellation then and you skip roughly 33 months of PMI, about $6,200, on top of the interest saved.
Note the difference: extra payments bring forward the date you can request cancellation. The automatic 78% date follows the original schedule, so you have to ask.
Checklist
- Find your original value and current balance on the loan statement.
- Divide balance by original value. Under 80%? Ask the servicer for its PMI cancellation requirements.
- If prices in your area have risen a lot, ask whether the servicer accepts a new appraisal; some allow cancellation based on current value after a few years.
Free tools
- Mortgage calculator: https://smartbudgetsheets.surge.sh/calculators/mortgage-calculator/?utm_source=mataroa
- Mortgage payoff calculator: https://smartbudgetsheets.surge.sh/calculators/mortgage-payoff-calculator/?utm_source=mataroa
- Down payment calculator: https://smartbudgetsheets.surge.sh/calculators/down-payment-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.