Can you cancel private mortgage insurance?

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It is important to understand the rules surrounding the PMI.


Key points

  • Private mortgage insurance is mandatory insurance for many home buyers.
  • You will generally have to pay PMI if you deposit less than 20%.
  • Once your home drops below 80% of the original value when you bought it, you will be able to have the PMI removed from your loan.

Many homeowners must pay for private mortgage insurance as part of their monthly mortgage payment. Private mortgage insurance, or PMI for short, is generally required for homeowners who put less than 20% down on their home.

Lenders force homeowners to pay PMI when they put down a small down payment, because lenders want to make sure they don’t suffer uncompensated losses. If a borrower defaults on a mortgage, the lender can foreclose. But with a small down payment, the home may not sell enough to pay off the loan and cover the lender’s fees. PMI ensures that lenders do not lose money under these circumstances.

Although homeowners pay for the PMI, they actually receive no direct protection. They can always be seized if they cannot pay their bills. For this reason, many homeowners are eager to cancel PMI so they don’t have to pay hundreds of dollars a year for insurance that only benefits their lender.

But is it possible to cancel the PMI? Here’s what you need to know.

This is how PMI can be removed from a loan

The good news is that it is possible to cancel private mortgage insurance. You are allowed to do this after you reach the date when your mortgage principal balance is expected to fall below 80% of the original value of your home when you paid for it. You can find out the date by looking at your PMI disclosure from your original mortgage documents, by looking at your loan repayment schedule, or by asking your loan officer when it is.

If you make additional payments on your loan, your loan balance will fall below 80% of your home’s value sooner than originally scheduled. If so, you can ask your lender to remove the PMI sooner than expected.

If the value of your home increases, you could also see your loan balance fall below 80% of the running market price of the property, even if it is still more than 80% of the original value of the house when you bought it. Although you will generally need to have an appraisal done to prove the current value of your home if you wish to waive the PMI in these circumstances, it should be possible to have the private mortgage insurance waived if the appraisal is high enough.

If one of these situations applies to you, you must make a written request to your lender to request the cancellation of the PMI. Generally, you should be up to date on your payments and your lender may require proof that your home’s value has not decreased before removing private mortgage insurance from your loan.

PMI will be automatically canceled under certain circumstances

In some cases, you do not have to request that the PMI be removed from your loan. In fact, private mortgage insurance automatically ends on the date your loan balance is expected to fall below 78% of the home’s original value.

While you could technically wait for automatic cancellation, that would mean paying the PMI longer since you are allowed to remove it once your balance drops to 80%. There’s no reason to wait and pay extra mortgage insurance premiums when it’s easy to request withdrawal.

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