How to Get Rid of PMI and FHA Mortgage Insurance Sooner

If you bought a home with less than 20% down, you're probably paying mortgage insurance. It protects the lender, not you, so it's worth removing as soon as you can. How you do that depends on whether you have a conventional loan or an FHA loan.

Conventional loans: private mortgage insurance (PMI)

PMI is typically charged as a monthly premium, often somewhere around 0.5% to 1.5% of the loan amount per year depending on your credit score and down payment. The federal Homeowners Protection Act gives you clear rights to remove it.

The 80% rule: request cancellation

You can ask your servicer to cancel PMI once your loan balance is scheduled to reach, or you've paid it down to, 80% of the home's original value. That's usually the purchase price or appraised value at origination, whichever was lower. Servicers typically require:

• A written request.
• A good payment history, with no recent late payments.
• Proof that the home's value hasn't declined, sometimes with an appraisal.
• No subordinate liens, such as a second mortgage.

The 78% rule: automatic termination

If you don't ask, PMI must automatically end when your balance is scheduled to reach 78% of the original value, provided you're current on payments. PMI must also end by the midpoint of your loan term (for example, year 15 of a 30-year loan) as long as you're current.

Using appreciation to remove PMI early

If your home has risen in value, you may be able to remove PMI based on its current value rather than the original one. Many servicers allow this after you've held the loan for a minimum period, often two to five years, and require a new appraisal plus a lower loan-to-value threshold. Call your servicer and ask for their written requirements before paying for an appraisal.

FHA loans: mortgage insurance premium (MIP)

FHA loans work differently. You pay an upfront premium of 1.75% of the loan amount (usually rolled into the loan) plus an annual MIP paid monthly. For loans with FHA case numbers assigned on or after June 3, 2013:

• If you put less than 10% down, annual MIP lasts for the life of the loan.
• If you put 10% or more down, MIP lasts for 11 years.

Because of this, many FHA borrowers remove mortgage insurance by refinancing into a conventional loan once they have at least 20% equity. Weigh the closing costs and the new interest rate against the MIP savings.

Other ways to speed it up

• Make extra principal payments to reach 80% sooner. Specify that the extra goes to principal.
• Make value-adding improvements before a reappraisal.
• Check your statements to confirm that automatic termination actually happened.

The bottom line

Mortgage insurance helps people buy homes sooner, but you shouldn't pay it a day longer than necessary. Track your loan-to-value ratio, know which rules apply to your loan, and ask your servicer about removal as soon as you might qualify.