Can I Get Rid of My Private Mortgage Insurance?
The basic requirements for canceling private mortgage insurance (PMI) are these:
- You must have at least 20% equity in your home. A higher equity percentage may be required by lenders if you’ve converted your property for rental use.
- You must have paid down your mortgage balance to 80% of the home’s original appraised value.
- You must request PMI cancellation in writing.
- You must be current in your loan payments and have a good payment history.
- You may have to prove you don’t have any other liens – a home equity loan or line of credit, for example – on your home.
- You may have to get a new appraisal to demonstrate that your loan balance is under 80% of your home’s current value.
If the balance on your mortgage has dropped to 78% of your home’s original appraised value, the mortgage servicer is required to eliminate your PMI.
Note: Private mortgage insurance can be cancelled. Recent FHA insurance cannot be cancelled.
To calculate whether you’ve reached the 80% or 78% threshold, divide the amount you still owe on your mortgage by the amount of your home’s original appraised value, which may well be its purchase price.
If you want to eliminate PMI sooner than the basic requirements allow, you do have some options:
Find ways to increase your home’s market value. Remodeling is the most obvious way that may help your home value. A potential redo of the kitchen from top to bottom may help or add a room or even install an in-ground pool. Then have your lender recalculate the loan-to-value ratio of your home using the new market-value amount.
Make sure you understand your rights. By law, lenders must tell you at closing the number of years and months it will take you to pay down your loan to the point you can cancel mortgage insurance. Also, mortgage servicers are required to provide you with an annual statement that includes information on who you should call about cancelling it.
Make sure you understand your obligations as well. If lenders see you as a high-risk borrower, they can impose stricter rules. The best way to avoid that is to keep your mortgage payments current.