Removing Private Mortgage Insurance

PMI, or private mortgage insurance, is designed to reduce the risk exposure for a lender, protecting them in the event that the home buyer cannot service the mortgage and is forced to default. The home buyer bears the cost of PMI, and this is included in monthly loan repayments. While PMI is necessary at the point of origination, you should not continue paying PMI when you no longer need to, and removing PMI payments may help you avoid refinancing your home loan. In this article, we will look at when and how you can remove PMI from your mortgage.

PMI is necessary during the first stages of the mortgage repayment phase. If any of the following applies to your situation, PMI may be a requirement.

• You have not yet built up 20% equity in your home — i.e., you still owe 80% or more of the principal on your home loan.
• Your down payment is less than 20% of the property's appraised value at the point of origination.
• You have not yet reached the mid-point of your home loan term duration.
• You have outstanding payments on your home loan.
• You have missed payments on your mortgage in the past.
• You have junior liens associated with your mortgage.

PMI can be removed from monthly repayments once sufficient equity is built up or once the loan reaches the halfway point of its amortization term.

If you have checked the above list and found that these do not apply, you may be able to remove PMI from your mortgage agreement. In fact, even if some of the above apply to your situation, you may still be able to cancel future PMI payments in some cases. 

Not everyone will be able to remove PMI from their home loan payments. You will need to have brought your mortgage's principal down to 78% of its original value before you can successfully cancel your PMI. In other words, you will have to have built up 22% equity in your property before you can request a cancellation.

Generally, this will occur according to your mortgage schedule — i.e., when you reach the date at which 22% equity is achieved, you can request a cancellation. However, you may have a mortgage that allows you to make payments above and beyond the minimum amount each month. Therefore, you may reach 22% equity before the scheduled date. If this is the case, you will be able to request a cancellation once you have reduced the principal balance to either 78% of your home's appraisal price from when it was purchased or 78% of the sales price listed on the contract.

Mortgage servicers should remove the PMI payment automatically, even if you have not requested a cancellation. This will occur when you have reached the date at which your home loan principal is reduced to 78% of the original value. One month after this date, the PMI should be automatically removed from your payments, assuming that you are up to speed on your payments.

If you are already at this point, check your loan payments. It may be that the PMI has already been canceled automatically, which means you do not have to request a cancellation yourself. If you have already gone beyond this point, contact your mortgage provider to ensure that cancellation is carried out. Don't allow continued PMI costs to be added to your monthly repayments, as this will leave you paying more for your mortgage than you should.

If you have checked your mortgage and your monthly payments and you discover that you are still paying PMI, you will need to make sure that you have reached the 20% equity level before you proceed.

You will not be permitted to cancel your PMI payments if you still have principal payments outstanding. If you still owe this month's payment, make sure this is submitted in full to bring you up to the cancellation threshold. 

You may also decide to make extra payments on your mortgage to accelerate your progress to the 22% equity threshold. If you are permitted to make this kind of payment ahead of schedule, do so to bring your principal down to 78% or below. Check with your mortgage servicer to ensure that this facility is available on your specific mortgage type. Bear in mind that Fannie Mae and Freddie Mac operate different minimum timeframes for cancellation, so you must check with your mortgage provider before you try to pay any lump sum to reach the threshold.

If you have missed payments in the past, this can be a problem. Your servicer may not accept your request to cancel the PMI if you do not have a strong history of timely payments made in full. If you are unsure about whether or not you can apply for a cancellation, get in touch with your mortgage servicer and inquire about this.

When you request that your mortgage servicer cancel the PMI payments on your account, you must do so in writing. Submit your request to your servicer once all other criteria have been met — i.e., you are at the principal threshold and you have no outstanding payments on your mortgage.

Your mortgage servicer may need you to provide further certification before they approve your request for PMI cancellation. For instance, you may need to provide certification that proves there are no junior liens attached to your home. If you have taken out a second mortgage against your property value, this may count against you, and your request could be denied.

The final step is to provide any other further documentation or evidence the mortgage servicer needs to see from you. This may not always be required, but it is important that you provide all documentation in a timely manner in the event that it is requested to ensure that your application is not delayed.

This will often include a home value appraisal document. Your mortgage provider may want to confirm that your property value has not fallen below the original value — i.e., the amount you paid for it at the point of the transaction — during the term of the mortgage. If the value has fallen below this level, your mortgage provider may deny your request to cancel PMI. Be prepared to seek an appraisal to prove this is not the case if required.

If you have had an interest-only period on your home loan, or if you have taken out another kind of mortgage that has prevented you from reaching the 20% equity level, there may be another way to cancel your PMI payments.

Generally, the mortgage provider can cancel the PMI payment if you are more than halfway through the full term of your home loan. So, for a 25-year mortgage, this would be any point after 12 years and six months have passed. This is the case even if you have not yet reached the 80/20 ratio of principal balance and equity. Please be aware, however, that all other criteria must still be adhered to — for example, you must be current on your payments and have a strong history of meeting payments regularly and on time.

Reach out to our team to learn more about PMI and how you can avoid or reduce this expense. Alternatively, apply online for financing today.