US · Mortgages
How to get rid of PMI: the 80% and 78% rules, and how to get there sooner
Private mortgage insurance doesn't have to last the life of your loan. Here's when US law says it must come off, how to ask for it to go earlier, and a worked example of the timeline on a $400,000 home.
By Stuart Mathieson · · 6 min read
UK mortgages don't usually come with anything like PMI - lenders tend to charge a higher interest rate on a small deposit instead. Reading up on it for the mortgage calculator on this site, what struck me was how much of it is set by federal law, and how many homeowners keep paying it longer than they need to.
This guide explains what PMI is, the rules for taking it off under the Homeowners Protection Act, and what you can do to reach those points sooner.
What PMI is
Private mortgage insurance is a policy lenders usually require on a conventional mortgage when your down payment is less than 20% of the purchase price. It also usually applies when you refinance a conventional loan with less than 20% equity.
The name is misleading: PMI protects the lender, not you. If you stop paying, the insurer covers part of the lender's loss. You can still lose the home to foreclosure.
Most people pay it as a monthly charge added to the mortgage payment. Some pay a single upfront premium at closing instead, or a mix of the two. If you pay upfront and then move or refinance early, you may not get any of it back.
What it costs depends on the size of your down payment, your credit score and the type of loan, and it should be set out in your loan paperwork. It's a real cost, and it buys you nothing once you have enough equity - which is why it's worth knowing exactly when it stops.
The three ways PMI ends by law
For a single-family home that's your main residence, with a loan that closed on or after 29 July 1999, the Homeowners Protection Act gives you three routes. They all work off the home's original value - generally the lower of the purchase price and the appraised value when you bought (or the appraised value at a refinance) - not today's value.
| Route | When | What you need to do |
|---|---|---|
| Cancellation on request | Balance reaches 80% of original value | Ask in writing, with a good payment record |
| Automatic termination | Balance is scheduled to reach 78% of original value | Nothing, as long as you're up to date |
| Final termination | The midpoint of the loan term (15 years on a 30-year loan) | Nothing, as long as you're up to date |
Asking at 80%
You can ask your servicer to cancel PMI once your balance reaches 80% of the original value. Your servicer can tell you when that's scheduled to happen, and extra payments can bring it forward. The servicer has to agree if you:
- ask in writing,
- have a good payment history and are current,
- can show there's no second mortgage or other junior lien, and
- can show the home hasn't fallen in value below its original value - usually with an appraisal, which you may have to pay for.
Automatic at 78%
If you don't ask, the servicer must end PMI when your balance is scheduled to reach 78% of the original value under your original payment plan. That's the key word: automatic termination follows the schedule, not your actual balance. If you've made extra payments, you'll get to 80% well before the 78% date - but only if you ask.
Final termination at the midpoint
Even if the balance still hasn't reached 78%, PMI must stop the month after you pass the midpoint of the loan's amortisation schedule. That mostly matters for loans with interest-only periods, forbearance or balloon payments, where the balance falls more slowly.
A worked example: $400,000 home, 10% down
Say you buy a home for $400,000 with 10% down, so you borrow $360,000 on a 30-year fixed mortgage at an example rate of 6.5%. The monthly principal and interest payment is $2,275.44.
The PMI milestones are worked out on the $400,000 original value:
- 80% of $400,000 = $320,000
- 78% of $400,000 = $312,000
| Extra paid each month | Balance at or below $320,000 (80%) | Balance at or below $312,000 (78%) |
|---|---|---|
| None | Month 95 (7 years, 11 months) | Month 109 (9 years, 1 month) |
| $100 | Month 77 (6 years, 5 months) | Month 89 |
| $200 | Month 64 (5 years, 4 months) | Month 75 |
| $500 | Month 44 (3 years, 8 months) | Month 51 |
With no extra payments, you could ask to cancel PMI in month 95, and it comes off automatically in month 109. That's more than a year's difference just for sending a letter.
With an extra $200 a month, you reach 80% in month 64 - two and a half years sooner. Remember the 78% automatic date still follows the original schedule (month 109), so with extra payments it's on you to ask.
To put a price on that, suppose your PMI is $150 a month - your own figure will be on your loan documents. Asking at month 64 instead of waiting for month 109 would save 45 months, or $6,750 of PMI, on top of the interest the extra payments save.
Getting there sooner
Extra payments
Any extra payment towards principal moves the 80% date closer. Make sure your servicer applies it to principal rather than holding it for next month's payment - most let you choose online. The loan calculator shows how extra payments change your balance over time.
Rising home values
The legal 80% and 78% rules use the original value, so a rise in your home's value doesn't count towards them. But many lenders and loan investors, such as Fannie Mae and Freddie Mac, have their own policies for removing PMI based on the home's current value, usually with a new appraisal. These rules vary - they often require you to have had the loan for a minimum period and to reach a stricter loan-to-value than 80% - so ask your servicer what theirs are before paying for an appraisal.
In the example above, after five years the balance is about $337,000. If the home were then worth around $421,000, that would be 80% of its current value. Whether your lender accepts that depends on their policy.
Refinancing
If rates and home values both move in your favour, refinancing into a new loan at under 80% of the new appraised value avoids PMI altogether. The closing costs need to be worth it, so run the numbers rather than refinancing just to drop PMI.
FHA loans work differently
FHA loans don't have PMI; they have an FHA mortgage insurance premium (MIP), and the Homeowners Protection Act rules above don't apply to it. For FHA loans with case numbers assigned on or after 3 June 2013:
- With a down payment of 10% or more (a loan-to-value of 90% or less at the start), annual MIP is charged for 11 years or the loan term, whichever is shorter.
- With less than 10% down, it's charged for the whole loan term (up to 30 years).
You can't cancel FHA MIP early by paying down the balance. The usual way out is to refinance into a conventional loan once you have enough equity. VA and USDA loans have their own arrangements too, so check with your servicer.
What to do now
- Find your loan paperwork, or ask your servicer, and note the 80% and 78% dates.
- Check your current balance against 80% of your original value.
- If you're close, decide whether a few extra payments would get you there sooner.
- When you reach 80%, send your servicer a written request - and ask what evidence of value they need.
My mortgage calculator shows PMI as part of your monthly payment and when it would drop off. It's an estimate built on the federal rules; your servicer's figures are the ones that count, and a housing counsellor approved by HUD can help if you're struggling with the process.
Run your own numbers
Written by Stuart Mathieson
I'm a freelance web developer based in Scotland, and I build and maintain every calculator on this site myself. I check the figures in these guides against HMRC, the IRS and the other official sources listed below, but I'm not a tax adviser - for decisions that matter, talk to one. More about me.