When Can You Cancel PMI? Understanding the Rules

One of the biggest benefits of PMI over FHA’s MIP is that PMI can be cancelled. Knowing the rules can save you thousands of dollars. Here’s a complete breakdown of when and how you can remove PMI from your mortgage.

The Homeowners Protection Act (HPA)

The HPA, enacted in 1998, protects homeowners by establishing clear rules for PMI cancellation. Under this law, lenders must:

• Automatically cancel PMI when your LTV reaches 78% based on the original purchase price.
• Notify you in writing about your PMI cancellation rights at closing.
• Provide annual statements about your PMI status.

Borrower-Requested Cancellation (80% LTV)

You can request PMI cancellation when your LTV drops to 80% based on the original purchase price. To do this, you must: have a good payment history, be current on payments, and in some cases, provide evidence that the property value hasn’t declined.

Automatic Cancellation (78% LTV)

If you haven’t requested cancellation at 80%, lenders must automatically cancel PMI when your LTV reaches 78%, as long as you’re current on payments.

Midpoint Cancellation Rule

For high-risk loans, PMI must be cancelled by the midpoint of the loan term (15 years into a 30-year loan), even if you haven’t reached 78% LTV.

Early Cancellation Through Home Appreciation

If your home has appreciated in value, you may be able to cancel PMI earlier. Lenders may require a formal appraisal. Once the new appraised value gives you 80% LTV or better, you can request cancellation.

Cancellation via Refinancing

If you refinance and the new appraisal shows at least 20% equity, the new loan won’t require PMI.

Conclusion

Don’t overpay for PMI longer than necessary. Monitor your loan balance and home value, and take proactive steps to cancel PMI as soon as you qualify.