PMI is private mortgage insurance on conventional loans with less than 20% down. It drops off automatically at 22% equity and can be cancelled earlier at 20% by request, or removed by refinancing.
What PMI Is and Why It Exists
PMI, or private mortgage insurance, is the insurance on a conventional loan that protects the lender when the borrower puts down less than 20 percent. With a small down payment, the lender is taking more risk, and PMI compensates for it. The cost is added to your monthly payment or paid in some other structure, and it is your cost, not the lender's.
PMI is not permanent. Unlike the mortgage insurance on many FHA loans, conventional PMI is designed to go away once you build enough equity, and knowing how to remove it can save you hundreds of dollars a month.
When PMI Automatically Goes Away
By federal rule, PMI on most conventional loans must be automatically terminated when your loan balance reaches 78 percent of the home's original value. That means once you have paid down or appreciated your way to 22 percent equity, the lender removes the PMI without you asking.
The automatic removal is based on the original value, not the current value, which is an important detail. If your home has appreciated, you may qualify for earlier removal based on today's value through a request or an appraisal.
How to Cancel It Early
You can often cancel PMI sooner by requesting it in writing once you reach 20 percent equity. Reach that threshold through principal payments, appreciation, or a combination, and ask your lender to remove the PMI. The lender may require an appraisal to verify the current value, and there may be a seasoning requirement before they will act.
Keep your request on record and follow up if you hear nothing. Lenders are required to respond to written PMI cancellation requests, so persistence usually gets results.
Refinancing Away PMI
If your equity has grown enough that a new loan would have no PMI, refinancing can eliminate it while locking in a new rate. This works when your current value supports at least 20 percent equity, since the new loan avoids PMI from the start. It also lets you move into a different loan structure if that suits you.
Before refinancing, run the numbers: the new loan's closing costs and rate must beat the cost of keeping PMI for the time you plan to stay. Sometimes a simple PMI cancellation request is the cheaper path.
Smarty's Advice Expert Insight
John Smart (Smarty) · Smarty Home Solutions / eXp Realty Agent, AI Certified Agent
Your Next Step for Dropping PMI
Know your equity number, and once you hit 20 percent, request cancellation in writing. Automatic removal at 22 percent is the backstop, but an early written request, backed by appreciation, can save you the most.
John Smart, AI-Certified Agent with eXp Realty helps Philadelphia-area homeowners understand their mortgage and equity. Call 215-598-6848 or schedule a free consultation.
Related reading: Avoiding PMI | MIP vs PMI