You have to make it happen, because they won’t. Federal law requires many mortgage providers to remove PMI under some circumstances. Some lenders may also allow for PMI to be removed, according to their own standards. Standards for getting PMI removed from a mortgage have been established under the Homeowners Protection-Act. The law provides two major ways for you to get rid of PMI:
- Request that PMI be cancelled
- Automatic PMI cancellation
When you have a conventional loan, you have the right to ask your mortgage servicing company to cancel mortgage insurance when you have reached the point on your mortgage schedule where the balance falls to 80% of the home’s original value. The date should be provided to you when you first get the mortgage on a PMI disclosure form. If you are unable to locate the form, you can ask your mortgage servicer for a copy.
You can request PMI be cancelled at an earlier date if you made higher payments that have reduced your mortgage balance to 80% of the original value.
This also could occur if the home has appreciated significantly in value since you have bought it. If you want to cancel PMI because of home appreciation, you may need a new appraisal to show the lender that you have reached 20% equity in the home.
There are other criteria you must meet if you want to cancel PMI. First, you must ask the lender in writing. Second, you must have a solid payment history and be current. If you have not made payments on time in the past 12 months, it is unlikely the lender will allow you to cancel PMI. Also, the lender may require you to prove you do not have a second mortgage on the property. Last, the lender may ask you show a current appraisal that shows the value of the home has not dropped.
Even if you do not ever ask the lender to cancel PMI, it still must terminate mortgage insurance on the date that your loan balance falls to 78% of the home’s original value. For mortgage insurance to be cancelled on this date, you must be current on mortgage payments. PMI will not otherwise be cancelled until payments are up to date.
There is another way you can get rid of PMI. If you are current on mortgage payments, the lender must end PMI the month after you are 50% through the loan’s amortization schedule. For a 30-year mortgage, this would be at the 15-year point. This standard is more likely for people with an interest only period on the loan, a forbearance or a balloon payment. In this case, you still must be current on monthly payments.
Keep in mind that your loan servicer may have other PMI cancellation policies that could include provisions beyond what is in federal law. But the guidelines may not restrict the rights that federal law gives you. For instance, the act does not have requirements for how long the loan has to have been in effect before you can request cancellation of mortgage insurance.
What About FHA?
FHA financing is another matter. These loans are secured by the Federal Housing Administration. FHA mortgages written after June 2013 cannot generally have mortgage insurance cancelled. The federal government changed the rules in 2013 to shore up the reserve fund for FHA, so most FHA loan holders must pay mortgage insurance for their entire loan term.
One exception is a loan where at least 10% was put down for a down payment; these loans can have mortgage insurance cancelled after 11 years. If you have an FHA loan and have 20% equity, you may not be able to cancel mortgage insurance. The best option in this situation is to refinance into a conventional mortgage. This should be possible if you have a credit score in the 640 range.
Takeaways on PMI Cancellation
The bottom line on cancelling PMI is that the rules have been laid out very specifically in federal law so that mortgage companies cannot force you to pay PMI longer than necessary. The lender can legally decline to deny your request when you are at 20% equity. But, if you have made payments on time, the mortgage provider MUST under federal law automatically cancel PMI when you have reached 78% loan to value. Ask your mortgage company if they have any no-PMI mortgages that are priced competitively.
But before that, you will probably need to contact the mortgage provider in writing for them to consider removing PMI at 80% loan to value.
Of course, you can avoid PMI entirely if you put down at least 20% on your home. But this is challenging for many Americans, especially first-time buyers who lack equity.