If you bought a house with a mortgage, odds are the lender required you to pay for private mortgage insurance (PMI). This insurance is designed to protect the lender if you stop making payments on your home loan.
Although lenders typically don’t require PMI if a homebuyer makes a down payment of at least 20 percent, most buyers put down less and end up having to pay for PMI as part of their monthly mortgage payments. This extra expense can add thousands of dollars to the cost of homeownership over the years.
The good news is that you don’t have to pay for PMI forever. According to the Consumer Financial Protection Bureau, federal law gives you the following rights to eventually remove PMI from your loan:
Request PMI Cancellation
You have the right to request that your mortgage servicer cancel PMI when you’ve reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should’ve been given to you in writing on a PMI disclosure form when you received your mortgage.
You can ask to cancel PMI earlier if you’ve made additional payments that reduce the principal balance to 80 percent of the original value of your home. For this purpose, “original value” generally means either the contract sales price or the appraised value of your home at the time you purchased it–whichever is lower (or, if you’ve refinanced, the appraised value at the time you refinanced).
If you want to cancel PMI, your request must be in writing and you must have a good payment history and be current on your payments. In addition, your lender may require you to certify that there are no junior liens, such as a second mortgage, on your home. Your lender can also require you to provide evidence, such as an appraisal, that the value of your property hasn’t declined below its original value. If the value has decreased, you may not be able to cancel PMI at this time.
Automatic PMI Termination
Even if you don’t ask your servicer to cancel PMI, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments on the anticipated termination point. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.
Final PMI Termination
There is one other way you can stop paying for PMI. If you’re current on payments, your lender or servicer must end PMI the month after you reach the midpoint of your loan’s amortization schedule. For 30-year loans, for example, the midpoint would be after 15 years have passed. This final termination applies even if you haven’t reached 78 percent of the original value of your home.
Notably, different rules might apply for Federal Housing Administration and U.S. Department of Veterans Affairs loans, and some lenders and servicers may also allow for earlier removal of PMI under their own standards. Contact your servicer regarding PMI questions.
This article is intended for informational purposes only and should not be construed as professional or legal advice.
