Private Mortgage Insurance (PMI): Cost, Cancellation and Removal

What PMI covers—and what it does not

Private mortgage insurance reduces the lender’s loss risk if a borrower defaults. The premium is paid by the borrower, but it does not protect the borrower’s equity, make mortgage payments during unemployment or replace homeowners insurance.

PMI is associated with conventional loans. Government-backed mortgages can use different insurance or guarantee structures, so do not apply conventional PMI cancellation rules to an FHA, VA or USDA loan without checking the program and servicer documents.

How PMI may appear in your payment

PMI can be charged monthly, upfront or through another lender-approved structure. A monthly premium is commonly included in the total mortgage payment. Review the Loan Estimate, Closing Disclosure and servicing statement to identify the amount and method.

The premium can change the total monthly ownership cost even though it does not reduce principal. Add it separately when comparing loans with different down payments.

Borrower-requested cancellation

For many mortgages covered by the Homeowners Protection Act, a borrower can request PMI cancellation on the date the principal balance is scheduled to reach 80% of the property’s original value, or earlier when actual payments reduce the balance to that threshold. Requirements can include a written request, a good payment history, current loan status and evidence that the property has not declined in value.

The “original value” is generally tied to the lower of the purchase price or appraised value at origination for a purchase loan, with special treatment for refinances. Servicers may have procedures for valuation evidence, and investor rules may offer additional options based on current value.

Automatic termination and final termination

Automatic termination is different from a cancellation request. For many covered loans, PMI must terminate when the principal balance is first scheduled to reach 78% of the original value, provided the borrower is current. There is also a final-termination rule connected to the midpoint of the amortization period for certain loans.

Extra principal payments can move the actual balance below 80%, but they do not always change the scheduled 78% date used for automatic termination. That is why borrowers who pay ahead often need to make a formal request rather than wait.

PMI removal checklist

• Confirm whether the loan is conventional and covered by the federal PMI rules.
• Locate the original value, current principal balance and scheduled amortization date.
• Review the servicer’s written cancellation instructions.
• Check payment-history and property-value requirements.
• Keep copies of the request, valuation documents and servicer response.
• Confirm on a later statement that the premium actually stopped.

Deciding whether to wait, pay principal or request a review

Do not send a large principal payment solely to remove PMI until you confirm how the servicer will evaluate the request. Compare the premium savings with the value of keeping cash available for emergencies, maintenance and other higher-priority obligations.

Use the Monthly Homeownership Cost Calculator to model the payment with and without PMI, while remembering that taxes and insurance can still change.