How to Remove PMI from Your Mortgage: A Step-by-Step Guide

If you put less than 20% down on a conventional loan, you are paying PMI — private mortgage insurance. On a $400,000 loan with 5% down, PMI typically runs $150–$250 per month, adding $1,800–$3,000 to your annual housing cost. The good news is that PMI is not permanent. Federal law governs when your lender must cancel it automatically, you have the right to request early removal once you reach 20% equity, and if your home has appreciated since you bought it, a new appraisal may get you there significantly faster than waiting. Here is exactly how it works.

What Is PMI and Why Do Lenders Require It?

PMI protects the lender — not you — if you default on the loan. Lenders require it when your loan-to-value ratio (LTV) exceeds 80% because loans with less than 20% equity carry a statistically higher default risk. Once your equity reaches 20%, that risk drops enough that lenders no longer need the insurance coverage. Your monthly PMI cost varies based on loan amount, credit score, and down payment, but typically runs 0.5%–1.5% of the loan amount annually.

The Three Paths to PMI Cancellation on a Conventional Loan

1. Automatic Cancellation at 78% LTV (Required by Law)

The Homeowners Protection Act of 1998 requires lenders to automatically cancel PMI when your loan balance reaches 78% of the original purchase price — as long as your loan is current. This is calculated based on your original amortization schedule, not current market value. On a $400,000 purchase with 5% down ($380,000 loan), automatic cancellation triggers when your balance reaches $312,000. At a 7% rate, that takes approximately 10 years of regular payments.

2. Requesting Early Cancellation at 80% LTV

You have the right to submit a written request to cancel PMI once your loan-to-value ratio reaches 80% of the original purchase price. Your lender can require a good payment history — typically no payments 60-plus days late in the prior two years and no payments 30-plus days late in the prior year — and certification that no junior liens exist on the property. Once you submit the request, the lender has 30 days to respond. Keep a record of your written request and follow up if you do not receive a written response.

3. Early Removal Based on Current Appraised Value

If your home has increased in value since you purchased it, you may reach the 80% LTV threshold sooner by requesting a new appraisal at your expense. Lenders typically require that you have owned the home for at least two years with at least 25% equity, or at least five years with at least 20% equity. An appraisal typically costs $500–$750. If the value has risen enough, that one-time cost can eliminate hundreds of dollars in monthly PMI going forward — a straightforward financial decision.

How to Accelerate PMI Removal

Make Extra Principal Payments

PMI cancellation is tied to your loan balance reaching a specific threshold, so extra principal payments accelerate the timeline. Even an extra $100–$200 per month directed entirely to principal can shave years off the time to automatic cancellation. When making extra payments, specify in writing that the payment should be applied to principal — not to a future month's payment, which is what some servicers default to.

Strategic Refinancing

If interest rates have dropped since you took out your loan, refinancing into a new loan at or below 80% LTV eliminates PMI entirely on the new loan — because your LTV at origination would be at or below 80%. Even if rates are similar, if home appreciation has brought your equity well past 20%, a refinance can permanently eliminate PMI and potentially improve your rate at the same time.

FHA Loans: Different Rules, Different Timeline

FHA loans have their own form of mortgage insurance called MIP — mortgage insurance premium — and the rules are significantly less favorable than conventional PMI. FHA MIP has two components: an upfront premium of 1.75% of the loan amount added to your balance at closing, and an annual premium of 0.55%–1.05% depending on your LTV and loan term, paid monthly.

Lender-Paid PMI: Lower Rate, No Easy Exit

Some lenders offer lender-paid PMI (LPMI), where you receive a slightly lower rate in exchange for the lender absorbing the PMI cost — there is no separate PMI line item on your statement. The catch: because the cost is built into your interest rate rather than billed separately, there is no mechanism to cancel it later. If you want to eliminate the PMI cost after your equity grows, you must refinance entirely. This trade-off makes LPMI most attractive when you expect to move or refinance within a few years, before the accumulated rate premium outweighs the monthly PMI savings.

Is It Worth Requesting PMI Removal?

In almost every case, yes. The standard $150–$250 monthly PMI payment on a $400,000 loan amounts to $1,800–$3,000 per year. Paying $500–$750 for an appraisal to accelerate removal by two or three years saves $3,600–$9,000 in cumulative PMI payments. If you bought your home more than two years ago and believe it has appreciated — which is true for most DC metro buyers who purchased in the last several years — it is worth getting an informal market value estimate from a real estate agent before paying for a formal appraisal. If the numbers support PMI removal, the paperwork is simple and the payoff is clear.

Bottom Line

PMI is a cost, not a permanent condition. If you are paying it on a conventional loan, track your loan balance, understand the two-year and five-year reappraisal windows, and submit a written cancellation request as soon as you hit 80% LTV. If you are on an FHA loan with less than 10% down, plan for a conventional refinance when your equity reaches 20% — that is the only way to permanently eliminate FHA mortgage insurance. Either way, knowing the rules puts you in control.