How to get rid of PMI (and avoid it)

What PMI is and why you have it

Private mortgage insurance protects the lender, not you, when you put down less than 20 percent on a conventional loan. It is the price of getting in with a smaller down payment.

The good news is that PMI is temporary on conventional loans. As you pay down the balance and your home gains value, you build the equity that makes the insurance unnecessary.

It usually costs a fraction of a percent of the loan each year, split into your monthly payment. On a modest Michigan mortgage that might be $40 to $100 a month, which adds up over several years.

Loan-to-value, or LTV, is the number that governs everything here. It is your loan balance divided by the home's value, and the lower it goes, the closer you get to dropping PMI. Our PMI glossary entry has the plain-English version.

Two ways to cancel PMI

Federal law gives conventional borrowers clear rights here, so you are not at the mercy of the lender's mood.

Request it at 80% LTV

Once your balance hits 80 percent of the original value, you can ask your servicer in writing to cancel. You must be current on payments and may need an appraisal to confirm the home has not lost value.

Automatic cancellation at 78% LTV

If you do nothing, the servicer must drop PMI automatically when your balance reaches 78 percent of the original value on your amortization schedule. You still have to be current on the loan for this to happen.

1. Check your current balance against the home's original purchase value
2. Confirm you are at or below 80 percent LTV and current on payments
3. Send a written cancellation request to your loan servicer
4. Pay for an appraisal if the servicer requires one to verify value

How to speed it up

You do not have to wait for the calendar. Extra principal payments push your balance toward the 80 percent mark faster than the standard schedule.

Rising home values help too. If your neighborhood appreciated, a fresh appraisal can show you crossed the threshold sooner, though the servicer sets the rules on when value-based requests are allowed.

A renovation that genuinely raises value can also move the needle. Keep receipts and expect the servicer to order its own appraisal rather than take your word for it.

See how faster payoff plays out using our mortgage payoff calculator. Refinancing is another route if today's rates and your equity make it worthwhile.

How to avoid PMI in the first place

The cleanest way to skip PMI is a 20 percent down payment on a conventional loan. That is a tall order, so most buyers weigh the alternatives below.

• 20% down: the straightforward path to no PMI on a conventional loan
• Piggyback loan: a second loan covers part of the down payment so the first stays at 80 percent LTV
• Lender-paid PMI: the lender covers it in exchange for a slightly higher rate
• Different loan type: VA loans require no mortgage insurance at all for eligible veterans

Each option trades one cost for another. Lender-paid PMI buys a lower monthly payment now but a higher rate for the whole loan, so do the long-term math before you commit.

One warning on FHA loans. FHA mortgage insurance is not the same as PMI, and on most FHA loans it lasts the life of the loan unless you refinance into a conventional mortgage.

Is dropping PMI worth the effort?

For most owners, yes. Removing PMI is free money once you clear the threshold, since the payment shrinks with nothing given up in return.

The one cost to weigh is an appraisal, which the servicer may require to confirm value. On a large monthly premium, that fee usually pays for itself within a few months.

There is also a paperwork tax on your attention. Servicers are not always eager to remind you, so it falls to you to track your balance and send the request.

If you are refinancing anyway, fold the PMI question into that decision. Our refinance calculator helps you see whether a new loan clears both goals at once.