So, having a solid idea of your home’s value and how it’s changed can help you track when it might be time to ditch the PMI. But a simple hunch won’t be enough to get your lender to remove it. You’ll need to get an appraisal or another official valuation of your home (more on that below.)
In light of low interest rates, an increasing number of homeowners have decided to trade their old mortgage for a new one, a process known as refinancing. Refinancing activity rose 33% in the first half of 2021, compared to the last half of 2020. Sometimes, a refinance is also a good opportunity to check on your LTV and see whether you qualify for PMI removal.
If, based on the home’s appraised value, you have at least 20% equity, “then the second that that loan closes, the new loan starts without private mortgage insurance from the start,” shares Richie Helali, a mortgage expert with HomeLight Home Loans.
5. You’re midway through your loan’s term.
If you are up to date and current on your PMI payments, then the lender must terminate PMI the month after you reach the midpoint of your loan’s amortization schedule, according to guidance from the CFPB.
If you’re midway through your loan’s term, this PMI termination applies even if you have not reached 78% of the original value of your home. For example, on a 30-year loan, PMI would be removed after 15 years.
What else I?
If you want to cancel your PMI before auto-termination or be sure that you qualify at the 80% threshold, you may need to meet the following requirements or take these steps.
Written or verbal request
A borrower may need to submit a written request to their mortgage servicer to initiate PMI cancellation. To confirm, you can contact the lender ahead of time and ask about the process of removing PMI.
“Normally phone calls to mortgage servicers are recorded, so that I removal as well,” advises Helali. “It might be a little different from servicer to servicer, so it’s always best that we can start with a phone call to go over the guidelines and what is required.”
A homeowner likely needs to have a history of paying on time and be up to date with mortgage payments to have their PMI removed. Late payments in recent months I.
“A strong payment history usually mentions that over the previous 12 months, you haven’t had a late payment,” says Helali. “A late payment is often defined as more than 30 days late.”
No secondary liens
Your lender might need to certify that there are no liens, such as unpaid contract work, second mortgages, IRS, or outstanding HOA dues, on your property before you can cancel PMI.
In addition to meeting the LTV requirements for PMI removal, your lender may also require a minimum payment history or loan tenure, known as a “seasoning” requirement. According to Fannie Mae, loans between two and five years must have a 75% LTV or less to be eligible for PMI removal, or 80% or less if the loan is greater than five years. “In order to get your private mortgage insurance removed, you may need to be on the loan for a minimum of 12 months,” shares Helali. “After you’ve been on the loan for one year, the lender should automatically dissolve the PMI when you have 22% equity in the home.”
However, understand that the lender will only automatically drop your PMI when you’ve reached 22% equity from paying down your home loan – they will not do so for market equity. In any case, a “seasoning” rule could potentially impact your ability to get rid of PMI if your mortgage is on the newer side; however, it is dependent on your specific lender’s requirements, so always reach out to your servicer to confirm.