Dear Claire: How Do I Cancel Mortgage Insurance?
Dear Claire, I noticed that mortgage insurance is included in my monthly house payment. Is there a way to cancel it, or am I stuck paying it for the entire life of my loan?
This is a question every homeowner with mortgage insurance should be asking.
An 1892 Queen Anne house on 0.03 acres at 14 S.W. Whitaker St. in South Portland is for sale.
Mortgage insurance can add a meaningful amount to your monthly payment, and many people continue paying it simply because they don’t realize they may be eligible to have it removed. Depending on your loan, your payment history, your remaining balance, and the current value of your home, you may have several options.
The first thing I want to clarify is that mortgage insurance is not the same thing as homeowners insurance.
They both contain the word “insurance,” but they serve completely different purposes.
Homeowners insurance protects you and your property from certain covered losses. Mortgage insurance primarily protects the lender if you stop making your mortgage payments.
You pay for it, but the coverage is generally for the lender.
I know. That doesn’t sound particularly exciting.
However, mortgage insurance can make it possible for people to purchase homes without waiting until they have saved a 20% down payment. That can be incredibly valuable, especially in a market where home values may rise while you’re trying to save.
But once mortgage insurance has served its purpose, you certainly don’t want to keep paying for it longer than necessary.
So, how do you get rid of it?
The answer depends on which kind of mortgage insurance you have and how much equity you have built in your home.
What Is Private Mortgage Insurance?
Private mortgage insurance, usually called PMI, is most commonly associated with conventional mortgages.
When you purchase a home with a conventional loan and put down less than 20%, the lender will generally require PMI. The policy reduces some of the lender’s financial risk if the borrower defaults.
PMI is usually included as part of your monthly mortgage payment, although the way it is paid can vary by loan.
Your mortgage statement may divide your payment into several pieces:
It is easy to overlook the mortgage-insurance charge because you make one combined payment each month. But when you take a closer look, you may discover that you’re paying $100, $200, or potentially more each month for PMI.
That’s real money.
Removing a $200 monthly PMI payment would save you $2,400 a year. Over several years, those savings can become substantial.
Start by Finding Out What Kind of Loan You Have
Before doing anything else, figure out what type of mortgage you have.
Is it:
- A conventional loan?
- An FHA loan?
- A VA loan?
- A USDA loan?
- Another specialized mortgage product?
The cancellation rules are not the same for every loan.
You can usually find your loan type in your original closing documents, on your mortgage statement, or by calling the company that services your loan.
The loan servicer is the company that collects your payments. It may or may not be the same company that originally gave you the mortgage.
Ask your servicer two simple questions:
- What kind of mortgage insurance am I paying?
- What are the requirements for removing it from my specific loan?
That conversation gives you a much better starting point than relying on a general online calculator or advice that may not apply to your mortgage.
Option One: Request PMI Cancellation Based on Your Original Home Value
For many conventional mortgages, federal law gives homeowners the right to request PMI cancellation when the loan’s principal balance is scheduled to reach 80% of the home’s original value.
This means you have approximately 20% equity based on the value used when you purchased the home—not necessarily what the home is worth today.
For a purchase loan, the “original value” is generally the lower of the purchase price or the appraisal completed when the mortgage originated.
Your loan servicer should have provided a PMI disclosure showing the date when your balance is expected to reach that 80% point. You can also contact the servicer and ask for the date.
Let’s use a simple example.
Suppose you bought a home for $400,000.
Eighty percent of $400,000 is $320,000.
Once your principal balance is scheduled to reach $320,000, you may be able to submit a written request to cancel PMI.
You will generally need to be current on your mortgage. Your servicer may also require evidence that the property hasn’t declined in value and that there are no subordinate liens, such as a second mortgage, that would interfere with the equity requirement.
This cancellation will not necessarily happen the moment your online balance appears to cross 80%. You usually need to contact your loan servicer and follow its request process.
That is why I encourage homeowners to be proactive.
Option Two: Pay Down Your Principal Faster
You don’t necessarily have to wait for your regular amortization schedule to reach the 80% mark. You may be able to get there sooner by making additional principal payments.
Let’s go back to that $400,000 home.
Suppose the balance isn’t scheduled to reach $320,000 for another two years, but you’ve received a bonus, inheritance, or another source of funds. If you apply enough money directly toward the loan principal, you may reach the required balance earlier.
Once you do, you can ask your servicer whether you’re eligible to request PMI cancellation.
Be sure any extra payment is being applied to principal, rather than simply being treated as an early regular payment.
You should also think carefully before putting a large amount of cash into your mortgage. Eliminating PMI may be beneficial, but you still need adequate emergency savings and funds for home repairs.
I would not empty every account merely to remove a relatively modest PMI payment. The decision should make sense within your broader financial plan.
Option Three: Use Your Home’s Increased Value
This is the route that gets homeowners particularly interested in rising real estate markets.
Let’s say you purchased your home for $400,000 with a relatively small down payment. At the time, you didn’t have 20% equity, so PMI was required.
Several years later, you believe the home may be worth $550,000.
Even if your loan balance hasn’t fallen to 80% of the original $400,000 value, the relationship between what you owe and what the property is worth today may be dramatically different.
That may create an opportunity to request PMI removal based on the home’s current value.
This process is not identical for every mortgage. The loan’s owner, the servicer’s requirements, your payment history, the age of the loan, and the loan-to-value ratio can all matter.
For example, Fannie Mae‘s servicing rules allow borrower-initiated mortgage insurance termination based on a property’s current value when the applicable requirements are satisfied. The servicer does not initiate that process for you; the homeowner has to ask.
That last point is important.
Your servicer may not call and say, “Congratulations! Portland home values have increased, so we’d like to help you stop paying us this additional monthly charge.”
You generally need to start the conversation.
Will I Need an Appraisal?
Your servicer will usually require some form of acceptable property valuation before canceling PMI based on appreciation.
Depending on the loan and the servicer’s rules, that could involve an appraisal, a broker price opinion, or another approved valuation method.
Do not order your own appraisal before talking to the servicer.
The lender or servicer may require the valuation to be ordered through its own process. If you independently hire an appraiser, the servicer may not accept the report, and you could end up paying for a second valuation.
Call first and ask:
- What valuation method is required?
- Who orders it?
- What will it cost?
- What value must the home reach?
- Are there seasoning requirements?
- Does my payment history qualify?
- Will improvements to the property be considered?
As a real estate broker, I can help a homeowner look at recent comparable sales and develop a reasonable idea of the property’s potential value before paying for the official valuation.
I cannot guarantee what an appraiser or servicer will conclude, but reviewing relevant comparable properties can help you decide whether the request is worth pursuing.
Improvements May Affect the Calculation
Have you remodeled the kitchen?
Added a bathroom?
Finished previously unfinished space?
Built an addition?
Completed other substantial improvements?
Tell your servicer before beginning the PMI-removal process.
Major improvements may affect the applicable requirements or provide useful context for the home’s current value. Keep records of the work, including permits, invoices, plans, and before-and-after information.
Routine maintenance is important, but replacing a worn-out water heater or painting a bedroom is not the same as completing a significant renovation. The servicer will determine how its rules apply.
Option Four: Wait for Automatic PMI Termination
You can also wait for PMI to terminate automatically.
For many mortgages covered by the federal Homeowners Protection Act, the servicer must automatically terminate PMI when the principal balance is scheduled to reach 78% of the property’s original value, provided the loan is current.
Notice that this rule is based on the scheduled balance, not necessarily the actual balance created by extra payments.
If you’re not current when the scheduled termination date arrives, termination may be delayed until you bring the loan current.
This is one reason the numbers 80% and 78% both come up in conversations about PMI:
- At 80% of the original value, an eligible homeowner may generally request cancellation.
- At 78% of the original value, qualifying PMI generally terminates automatically if the loan is current.
There can be exceptions, including certain high-risk loans and situations outside the standard Homeowners Protection Act rules, so your own loan documents and servicer remain important.
Option Five: Refinance the Mortgage
Refinancing is another potential way to eliminate mortgage insurance.
When you refinance, you replace the existing mortgage with a new loan. If the new loan amount is no more than 80% of the home’s qualifying value, the new conventional mortgage may not require PMI.
Refinancing can be especially useful for someone with an FHA loan whose mortgage insurance premium cannot otherwise be removed under the applicable rules.
However, I would not refinance solely because the words “no mortgage insurance” sound appealing.
A refinance may involve:
- A different interest rate
- Closing costs
- Appraisal expenses
- Lender fees
- A longer or shorter loan term
- A reset of the amortization schedule
Suppose eliminating PMI saves you $175 per month, but refinancing increases your interest rate and costs several thousand dollars in fees. That may not be a good trade.
On the other hand, eliminating mortgage insurance while also obtaining a favorable rate or loan structure could make sense.
Ask a trusted mortgage professional to compare the complete cost of keeping the current loan with the complete cost of refinancing. Look beyond the new monthly payment and consider how long you expect to own the home.
What About FHA Mortgage Insurance?
This is where homeowners need to be especially careful, because FHA mortgage insurance does not follow the same rules as conventional PMI.
FHA borrowers generally pay mortgage insurance premiums, known as MIP, rather than conventional PMI.
For many FHA loans with case numbers assigned under the rules in effect since June 3, 2013, the duration of annual MIP depends on the original loan-to-value ratio. Loans that began at 90% LTV or below generally carry annual MIP for 11 years, while many loans that began above 90% LTV carry it for the mortgage term.
That means the common statement that FHA mortgage insurance “can never be removed” is too broad.
The accurate answer depends on when the FHA loan originated, its original loan-to-value ratio, its term, and the FHA rules that apply to it.
For many borrowers who made a typical small FHA down payment, refinancing into a conventional loan may be the practical route to eliminating ongoing FHA mortgage insurance—but only if they qualify and the refinance makes financial sense.
Do not assume that simply reaching 20% equity will automatically cancel FHA mortgage insurance. Call your servicer and have a lender review the details of your particular mortgage.
Mortgage Insurance Does Not Protect Your House
I want to repeat this because it causes so much confusion:
Mortgage insurance does not replace homeowners insurance.
PMI or FHA MIP will not rebuild your home after a fire.
It will not cover your belongings after a burglary.
It will not pay for storm damage.
It will not provide the liability protection typically included in a homeowners policy.
Mortgage insurance protects the lender against certain losses related to borrower default. Homeowners insurance protects the property owner against covered property and liability risks.
You may see both expenses on the same mortgage statement, but they are completely different forms of insurance.
Should I Try to Remove My Mortgage Insurance Now?
Here is the simple process I recommend:
First, find your most recent mortgage statement and identify how much you’re paying for mortgage insurance.
Next, call your loan servicer and ask what kind of mortgage insurance you have.
Then ask for the exact cancellation requirements for your loan.
Find out whether you qualify based on:
- Your current principal balance
- The original value of the property
- The property’s estimated current value
- Your payment history
- The age of the mortgage
- Any liens against the home
- Any substantial improvements you’ve completed
Finally, compare the expected savings with the cost of the valuation, refinancing, or making additional principal payments.
You may discover that you’re already eligible.
You may learn that you’re only a few months away.
Or you may determine that waiting is financially smarter than paying for an appraisal or refinancing today.
The important thing is knowing rather than guessing.
Frequently Asked Questions About Canceling Mortgage Insurance
Does PMI disappear as soon as I have 20% equity?
Not always. You may need to submit a cancellation request and satisfy your servicer’s requirements. Automatic termination for many eligible loans generally occurs when the scheduled balance reaches 78% of the original value and the loan is current.
Can rising home values help me remove PMI?
Potentially, yes. Some conventional loan-servicing rules allow borrower-requested cancellation based on current property value. The valuation, loan age, payment history, and required equity level will depend on the loan and servicer.
Can I use an online home estimate as proof of value?
An online estimate may help you decide whether to investigate, but your servicer will generally require an approved valuation process. Ask what it requires before ordering or paying for anything.
Will making extra payments remove PMI faster?
Extra principal payments can help you reach the applicable loan-to-value threshold sooner. You will still need to follow your servicer’s cancellation process unless the mortgage reaches its automatic termination point.
Can I cancel mortgage insurance on an FHA loan?
It depends on the FHA loan’s origination date, original LTV, term, and governing rules. On many FHA loans with a small original down payment, MIP lasts for the mortgage term, making refinancing a possible route to eliminating it. On certain other FHA loans, MIP has a defined ending period.
Does refinancing always save money?
No. You have to compare interest rates, loan terms, closing costs, monthly savings, and the length of time you plan to keep the home. Eliminating PMI alone does not automatically make a refinance worthwhile.
My Final Thoughts
Mortgage insurance can be a useful tool when you’re purchasing a home. It allows many buyers to enter the market without waiting until they have a full 20% down payment.
But it is not something you want to pay for forever when you no longer need it.
If you bought your home several years ago, have consistently made your payments, have paid down the principal, or believe the property has appreciated significantly, now may be an excellent time to review your mortgage. In a nutshell:
- Start with your statement.
- Call your servicer.
- Ask specific questions.
And before paying for an appraisal or starting a refinance, make sure you understand the exact rules for your loan.
You may find that a relatively simple request can lower your housing expense by hundreds of dollars a month. Even if you don’t qualify today, you’ll know what benchmark you’re working toward and when it makes sense to check again.
About Claire Paris
Claire Paris is the Owner and Principal Broker of Paris Group Realty, LLC. She has been practicing real estate since 2004 and is licensed in both Oregon and Washington.
If you have a real estate question you’d like me to answer in a future Dear Claire, we’d love to hear it. And if you’re thinking about buying, selling, or investing in real estate, our team is always here to help. Get in touch—we’d love to be part of your next chapter.
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