Can You Cancel Private Mortgage Insurance?

It's important to understand the rules surrounding PMI. 

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

Lenders mandate homeowners pay PMI when they make a small down payment because lenders want to ensure they don't face uncompensated losses. If a borrower defaults on a mortgage, the lender can foreclose. But with a small down payment, it's possible the home won't sell for enough to pay off the loan and cover the lender’s costs. PMI ensures lenders don't lose money under these circumstances.

Although homeowners pay for PMI, they don't actually get any direct protection. They can still be foreclosed on if they can't pay their bills. For this reason, many homeowners are eager to cancel PMI so they don't have to keep paying hundreds of dollars a year for insurance that solely benefits their lender.

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

Here's how PMI can be removed from a loan

The good news is, it is possible to cancel private mortgage insurance. You're allowed to do this after you reach the date when your mortgage principal balance is scheduled to drop below 80% of the original value of your house at the time 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 payoff schedule, or by asking your loan servicer when it is. 

If you make extra payments on your loan, your loan balance will fall below 80% of your home's value earlier than the originally scheduled date. If that's the case, you can ask your lender to remove PMI sooner than planned. 

If your home goes up in value, you could also potentially see your loan balance drop below 80% of the current market price of the property, even if it is still above 80% of the original value of the home at the time you bought it. While you will typically need to get an appraisal done to prove the current value of your house if you want to cancel PMI under these circumstances, it should be possible to have private mortgage insurance removed if the appraisal comes in high enough.

If any of these situations apply to you, you should make a written request to your lender to ask for PMI cancellation. Typically, you must be current on payments and your lender may request proof that your home value has not declined before moving forward with removing private mortgage insurance from your loan.

PMI will be automatically canceled under some circumstances

In some cases, you do not have to actually ask for PMI to be removed from your loan. In fact, private mortgage insurance is terminated automatically on the date when your loan balance is supposed to fall to below 78% of the home's original value.

While you could technically wait for automatic cancellation, this would mean paying PMI for longer since you're allowed to get it removed once your balance falls to 80%. There's no reason to wait and pay extra mortgage insurance premiums when it's simple to request removal.