Typically, PMI is eligible for cancellation once the LTV on the original loan is 80% or less

PMI is easier to remove than MIP and guarantee fees. By law, it must be removed once the home’s LTV reaches 78% based on the original payment schedule at closing, depending on the occupancy and unit type.

Automatic Cancellation

If the residence is a single-family primary home or second home, your mortgage insurance will be canceled automatically in one of the following scenarios (whichever happens first):

1. The LTV on your property reaches 78%, which means you’ve earned 22% equity in your home based on the original amortization schedule (and you didn’t make extra payments to get it there).
2. You reach the midpoint of your mortgage term (year 15 on a 30-year mortgage, for example).

If you have a multi-unit primary residence or investment property, these rules differ slightly. With Fannie Mae, mortgage insurance goes away on its own halfway through the loan term. By contrast, Freddie Mac does not auto-cancel mortgage insurance.

If you don’t want to wait for your PMI to auto-cancel, you can request cancellation in either of these scenarios once your LTV reaches 80% through payments. The Homeowner’s Protection Act requires that these requests be delivered in writing . Yeah, like many laws, it’s archaic.

Fannie Mae and Freddie Mac both allow you to make extra payments in order to get to 80% sooner. If you don’t know whether your conventional loan is held by these institutions, you can use these lookup tools from Fannie Mae and Freddie Mac.

In most cases, you’ll have to get a new appraisal in order to verify that your home didn’t lose value since closing. If you’ve made substantial home improvements to increase your property value , these will have to be called out specifically in the new appraisal.

Natural Value Increase Cancellation

If you’re requesting removal of your PMI based on natural increases in your property value 2 – 5 years after your loan closes, both Fannie Mae and Freddie Mac require guaranteed payday loans Mansfeild a new appraisal, and the LTV has to be 75% or less. If your removal request comes more than 5 years after your closing, the LTV can be 80% or less with a new appraisal. These requirements apply to insurance removal based on market value increases not related to home improvements.

On a multi-unit residence or investment property , you can cancel PMI on your own when LTV reaches 70% based on the original value with Fannie Mae. Freddie Mac requires 65% for cancellation. Keep in mind that if you’re requesting removal based on home improvements from Fannie Mae, you must have had the loan for at least 2 years prior to requesting PMI removal on your investment property.

PMI Removal Example

Let’s say you take out a loan for a home for $150,000 and you make a $15,000 down payment. As a result, you end up borrowing $135,000 to cover the remaining cost. Dividing the amount you borrow by the value of your home gives you an LTV of 90%:

In the case above, once the loan has a remaining principal amount of $120,000, the LTV will reach 80% and I removal.

Avoid Mortgage Insurance From The Start

In addition to cancelling PMI, it’s also possible to completely avoid paying mortgage insurance from the start of your loan. Here’s how to eliminate the need for extra monthly payments.

Make A 20% Down Payment

The easiest way to skip PMI from the start is to make a large down payment. By making a 20% down payment on a conventional loan, your LTV will automatically be 80%, allowing you to pay your loan without mortgage insurance.