When Can I Drop PMI?

Borrowers who had to take out private mortgage insurance (PMI) because they put down less than 20 percent when they bought their home have the right to cancel the insurance, provided they can meet the cancellation rules.

Under the law, lenders must automatically cancel PMI when the loan balance reaches 78 percent of the home’s original sales price. This law does not apply to mortgages backed by the Federal Housing Administration (FHA). FHA borrowers must pay PMI for the life of the loan.

Under another provision of the law, borrowers with mortgages at least 24 months old can request their lender terminate PMI when the loan balance reaches 80 percent of the original value. Borrowers can accelerate getting to 80 percent by making extra payments. But the lender does not have to accept the borrower’s request for cancellation if the borrower has taken out a second mortgage, made late payments, or if the property has declined in value. If Fannie Mae or Freddie Mac own the mortgage, borrowers can also request PMI be canceled at 80 percent loan-to-value based on the current appraised value of the property rather than the value at the time the loan was made. In this case, the borrower must pay for an appraisal.

Finally, your lender must cancel PMI by the midpoint of your mortgage term – for example, 15 years for a 30-year loan – regardless of whether the 78 percent loan to value threshold has been reached.

Eliminating PMI can save borrowers thousands of dollars. The sooner you can eliminate PMI, the better.

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