You’re paying an extra $100 to $300 every month for private mortgage insurance. That money protects your lender, not you. The good news? You can remove PMI once you hit 20% home equity, and refinancing might be your fastest route to get there.
Quick Facts About PMI Removal
| Factor | Details |
|---|---|
| Automatic Removal | At 78% loan-to-value ratio |
| Request Removal | At 80% loan-to-value ratio |
| Average PMI Cost | $115 to $375 per month on a $300,000 mortgage |
| Annual PMI Rate | 0.46% to 1.5% of original loan amount |
| Time to Build 20% Equity | Typically 5-11 years with standard payments |
| Refinance Closing Costs | Around $5,000 on average |
What Is PMI and Why You’re Paying It
PMI is insurance you pay monthly when you put down less than 20% on a conventional mortgage. Your lender requires it because smaller down payments mean higher risk. If you default, PMI reimburses the lender for their losses.
Here’s what PMI costs you based on a $300,000 mortgage:
- Low-end cost: $1,380 annually ($115 monthly)
- High-end cost: $4,500 annually ($375 monthly)
- Five-year total: $6,900 to $22,500
Your exact rate depends on your credit score, down payment size, and loan-to-value ratio. Borrowers with credit scores below 680 typically pay more than 1% annually, while those with scores above 760 might pay closer to 0.46%.
When You Can Remove PMI Without Refinancing
You have two automatic paths to cancel PMI on your existing mortgage.
Request Cancellation at 80% LTV
Once your loan balance drops to 80% of your home’s original value, you can ask your lender to cancel PMI. You’ll need to:
- Submit a written request to your mortgage servicer
- Stay current on all payments with no late payments in the past year
- Prove your home hasn’t lost value (may require an appraisal)
- Confirm you have no second mortgages or liens
Automatic Termination at 78% LTV
Your lender must automatically cancel PMI when your loan balance reaches 78% of the original property value. This happens without any action from you, as long as you’re current on payments. If you’re halfway through your loan term and haven’t reached 78% LTV yet, your PMI still comes off at that midpoint.
How Refinancing Removes PMI Faster
Refinancing replaces your current mortgage with a new loan based on your home’s current market value. If your home has appreciated or you’ve paid down your balance, you might immediately have 20% equity with the new loan.
When Refinancing Makes Sense
Consider refinancing to remove PMI if:
- Home values increased in your area since you bought
- Interest rates dropped below your current rate
- You’ve made extra payments that reduced your principal
- Your credit score improved significantly since purchase
Real-World Example
You bought a $300,000 home in 2022 with 10% down ($30,000). Your original loan: $270,000.
Scenario 1: Standard Payment Schedule
- After 3 years of regular payments, you still owe $255,000
- Your LTV is still 85% ($255,000 ÷ $300,000)
- You’re paying PMI for several more years
Scenario 2: Home Value Appreciation
- Your home is now worth $350,000
- You still owe $255,000
- Your new LTV is 73% ($255,000 ÷ $350,000)
- Refinancing removes PMI immediately
Step-by-Step Guide to Remove PMI Through Refinancing
Step 1: Check Your Home Equity
Calculate your current loan-to-value ratio. Divide your remaining mortgage balance by your home’s current value, then multiply by 100.
Example: $240,000 loan ÷ $320,000 home value = 0.75 × 100 = 75% LTV
If your LTV is 80% or less, you qualify to remove PMI.
Step 2: Get a Professional Appraisal
Most lenders require a new appraisal to verify your home’s current market value. Appraisals typically cost $300 to $600. Recent home improvements like kitchen renovations, bathroom upgrades, or adding square footage can increase your appraised value.
Step 3: Compare Current Interest Rates
Check if today’s mortgage rates are lower than your current rate. Use online mortgage calculators to compare your potential new payment (without PMI) against your current payment (with PMI).
Break-even analysis matters. If refinancing costs $5,000 but saves you $200 monthly by removing PMI, you’ll break even in 25 months. After that, you keep the savings.
Step 4: Shop Multiple Lenders
Get quotes from at least three lenders. Compare:
- Interest rates
- Closing costs
- Loan terms
- Total cost over the loan life
Don’t just focus on the rate. A slightly higher rate with lower fees might cost less overall.
Step 5: Calculate Your Total Savings
Add up all costs and savings:
- Closing costs for refinance
- Monthly PMI you’ll eliminate
- Interest rate difference (if refinancing to a different rate)
- How long you plan to stay in the home
If you’re planning to move within two years, refinancing might not save enough to justify closing costs.
Step 6: Submit Your Refinance Application
Once you choose a lender, you’ll need:
- Recent pay stubs and W-2s
- Two years of tax returns
- Bank statements
- Current mortgage statement
- Homeowners insurance information
The process typically takes 30 to 45 days from application to closing.
Alternative Ways to Remove PMI Without Refinancing
Make Extra Principal Payments
You can request PMI removal once you hit 20% equity through additional payments. Some homeowners make bi-weekly payments instead of monthly, which results in one extra payment per year. Others apply windfalls like tax refunds or bonuses directly to principal.
Strategy: Set up automatic extra payments of $100 to $500 monthly. Even small amounts accelerate your path to 20% equity.
Request Removal Based on Home Improvements
If you’ve completed major renovations that increased your home’s value, you can request PMI removal based on the new value. You’ll need:
- An updated appraisal showing increased value
- Proof your LTV is now 80% or less based on the new value
- Documentation of improvements (receipts, permits)
Consider a Mortgage Recast
A recast lets you make a lump-sum payment toward your principal, and your lender recalculates your monthly payment based on the lower balance. While a recast doesn’t remove PMI directly, it helps you reach 20% equity faster.
Difference from refinancing: A recast keeps your existing loan and interest rate. You just pay down the balance and lower your monthly payment. Recast fees are typically $150 to $500, much cheaper than refinance closing costs.
PMI vs. MIP: Understanding FHA Loans
FHA loans don’t have PMI. They have mortgage insurance premiums (MIP), and the rules differ significantly.
How FHA MIP Works
- Upfront MIP: 1.75% of the loan amount paid at closing
- Annual MIP: 0.85% of the loan balance paid monthly
- Duration: For the life of the loan if you put down less than 10%
- 11-year MIP: If you put down 10% or more, MIP lasts 11 years
Removing MIP from FHA Loans
You cannot remove MIP from most FHA loans. Your only option is refinancing to a conventional mortgage once you have 20% equity. This removes MIP entirely, but you’ll pay closing costs for the refinance.
When it makes sense: If current rates are comparable to your FHA rate and you’ve built sufficient equity, refinancing from FHA to conventional eliminates MIP and potentially lowers your monthly payment.
What Refinancing Costs You
Expect to pay 2% to 5% of your loan amount in closing costs. On a $250,000 refinance, that’s $5,000 to $12,500.
Typical Closing Costs Include:
- Application fee: $75 to $300
- Origination fee: 0.5% to 1% of loan amount
- Appraisal: $300 to $600
- Title search and insurance: $700 to $900
- Credit report: $25 to $50
- Recording fees: $50 to $250
- Attorney fees: $500 to $1,000
Some lenders offer no-closing-cost refinances, but they build the fees into a higher interest rate. You’ll pay more over time instead of upfront.
When Refinancing Isn’t Worth It
Skip refinancing if:
- Interest rates increased significantly since your original mortgage
- You’re selling soon (within 2-3 years)
- Closing costs exceed savings in the time you’ll own the home
- Your home lost value and you don’t have 20% equity yet
- Your credit score dropped and you’ll get worse terms
In these situations, consider making extra principal payments or waiting until conditions improve.
How to Maximize Your Savings After Removing PMI
Once PMI is gone, redirect that money strategically:
Option 1: Continue the Same Payment
Keep making the same total monthly payment, but apply the PMI amount to your principal. This:
- Pays off your mortgage years earlier
- Saves thousands in interest over the loan term
- Builds equity faster
Option 2: Build an Emergency Fund
Redirect PMI savings to a high-yield savings account until you have 6-12 months of expenses covered. Financial stability matters more than accelerating mortgage payoff.
Option 3: Invest the Difference
If your mortgage rate is low (under 5%), investing the PMI savings in index funds might yield better long-term returns than paying down your mortgage faster.
Common Mistakes When Removing PMI
Mistake 1: Not Requesting Removal at 80% LTV
Your lender won’t automatically remove PMI until you hit 78% LTV. Many homeowners forget to request early removal at 80%, leaving money on the table for months.
Solution: Mark your calendar to check your LTV ratio every six months. Request removal as soon as you hit 80%.
Mistake 2: Refinancing When It Doesn’t Make Financial Sense
Some homeowners refinance solely to remove PMI without considering the total cost. If you’re paying $150 monthly in PMI but spending $6,000 in closing costs, you need 40 months (over 3 years) to break even.
Solution: Calculate your break-even point before refinancing. Factor in how long you plan to stay in the home.
Mistake 3: Ignoring Your Credit Score
Your credit score affects both your refinance rate and PMI cost. A 50-point improvement could save you thousands over the loan term.
Solution: Check your credit score before applying. If it’s lower than when you bought, work on improving it first by paying down debt and correcting errors.
Mistake 4: Assuming All PMI Is Equal
Some borrowers have lender-paid PMI (LPMI), where the lender covers PMI in exchange for a slightly higher interest rate. LPMI doesn’t come off automatically, even at 20% equity.
Solution: Check your closing documents to see if you have LPMI. If so, refinancing is your only removal option.
Your Legal Rights Under the Homeowners Protection Act
Federal law protects you regarding PMI removal. The Homeowners Protection Act of 1998 requires lenders to:
- Automatically terminate PMI when your loan balance reaches 78% of the original property value
- Cancel PMI upon request when you reach 80% LTV and meet other requirements
- Provide annual disclosures about your right to cancel PMI
- Notify you when PMI will terminate based on your payment schedule
If your lender violates these requirements, you can file a complaint with the Consumer Financial Protection Bureau.
Smart Questions to Ask Your Lender
Before pursuing PMI removal through refinancing, ask these questions:
- What’s my current loan-to-value ratio?
- Do I have borrower-paid or lender-paid PMI?
- What documentation do you need for PMI removal?
- Will you accept a broker price opinion instead of a full appraisal?
- What’s the exact process and timeline for PMI cancellation?
- Are there any restrictions on when I can request removal?
- What are the total costs to refinance, including all fees?
- How does my current rate compare to what you’re offering?
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Frequently Asked Questions
Can I remove PMI without refinancing?
Yes. You can request PMI removal once your loan-to-value ratio reaches 80% of your home’s original value. You’ll need to submit a written request, stay current on payments, and possibly provide an updated appraisal. PMI automatically cancels at 78% LTV even without a request.
How long does it take to get 20% equity in my home?
With a 10% down payment and regular monthly payments, you’ll typically reach 20% equity in 5 to 11 years, depending on your interest rate and any extra payments. Home value appreciation can speed this up significantly in strong real estate markets.
Does removing PMI hurt my credit score?
No. Removing PMI has no direct impact on your credit score. If you refinance to remove PMI, you’ll see a hard inquiry on your credit report, which might lower your score by a few points temporarily. The inquiry’s impact fades within months.
What’s the difference between PMI and homeowners insurance?
PMI protects the lender if you default on your loan. Homeowners insurance protects you from property damage, theft, and liability. You need homeowners insurance for the life of your mortgage and beyond. PMI only applies when you have less than 20% equity.
Can I negotiate PMI rates with my lender?
PMI rates are set by mortgage insurance companies based on risk factors like your credit score, loan-to-value ratio, and down payment. You can’t negotiate the rate directly, but improving your credit score before applying or making a larger down payment will lower your PMI cost.
Take Action Today
Removing PMI puts hundreds of dollars back in your pocket every month. Start by checking your current loan-to-value ratio. If you’re close to 80% equity, contact your lender about cancellation. If you have significant home equity due to appreciation or extra payments, get quotes from multiple lenders for refinancing.
The money you save by removing PMI can fund an emergency fund, accelerate your mortgage payoff, or help you invest in your financial future. Don’t wait—every month you delay costs you money you’ll never get back.
