How to remove PMI: the 80%, 78%, and midpoint rules

The three federal dates

For most mortgages on single-family principal residences that closed on or after July 29, 1999, the CFPB describes three milestones. First, you can ask your servicer to cancel PMI on the date the principal balance is scheduled to fall to 80% of the home’s original value; the first date you can ask should appear on the PMI disclosure you received with your mortgage. Second, the servicer must generally end PMI automatically on the date the balance is scheduled to reach 78%, if you are current on your payments. Third, if neither has happened, PMI must end the month after you reach the midpoint of the loan’s amortization schedule, which is after 15 years on a 30-year loan.

Original value generally means the lower of the contract sales price or the appraised value when you bought the home; if you refinanced, it is the appraised value at the refinance. FHA and VA loans follow different rules, and so do loans where the lender pays for the mortgage insurance, so ask your servicer how those end.

Sources: CFPB: When you can remove private mortgage insurance

Conditions for a requested cancellation

A request at 80% is not automatic. The CFPB lists four conditions: you make the request in writing; you have a good payment history and are current; you can certify there are no junior liens, such as a second mortgage, on the home; and you can show, for example with an appraisal, that the property’s value has not fallen below its original value. A HELOC is usually a junior lien too, so ask how your servicer treats one.

Fannie Mae’s servicing guide gives a concrete definition of an acceptable payment record for loans it owns: the loan is current when you ask, with no payment 30 or more days late in the last 12 months and none 60 or more days late in the last 24 months. A late payment in the past year can therefore hold up a request even when the balance qualifies.

Sources: CFPB: When you can remove private mortgage insurance · Fannie Mae Servicing Guide: Ending mortgage insurance

Worked example: the dates on a $360,000 loan

Take a hypothetical $400,000 home bought with 10% down: a $360,000 loan at 6.50% for 30 years, with PMI of $150.00 a month. Eighty percent of the original value is $320,000, and the scheduled balance reaches it in month 95, just under eight years in. Seventy-eight percent is $312,000, reached in month 109. The midpoint rule, which applies at month 180, mainly matters for loans with an interest-only period, principal forbearance, or a balloon payment.

The gap between the first two dates is worth money. Requesting cancellation at month 95 rather than waiting for automatic termination at month 109 avoids 14 months of premiums, or $2,100. Put the request date on your calendar, with a reminder a month ahead so you have time to gather what the servicer needs.

Getting there sooner with extra principal

The CFPB notes that you can ask to cancel PMI ahead of schedule if additional payments have brought the balance down to 80% of the original value. Automatic termination still follows the original schedule, so extra payments move up only the date you can ask.

On the example loan, an extra $100 a month reaches 80% in month 77, an extra $200 in month 64, and an extra $500 in month 44. Each month earlier is another $150.00 of premium you do not pay, on top of the interest saved by paying down principal sooner.

Sources: CFPB: When you can remove private mortgage insurance

Removal based on a higher home value

The federal rules use the original value, but the CFPB notes that loan investors such as Fannie Mae and Freddie Mac often set their own cancellation guidelines, which cannot be less favorable to you than the federal ones. Fannie Mae’s servicing guide allows a borrower-requested cancellation based on the home’s current value. For a one-unit principal residence or second home, the loan-to-value ratio must be 75% or less if the loan is between two and five years old, or 80% or less if it is more than five years old, and the servicer must verify the current value and your payment record.

In the example, the balance after two years is $351,683, so the home would need to be worth at least $468,911 for the balance to be 75% or less. After three years, with a balance of $347,102, the threshold is $462,803. If values in your area have risen, ask your servicer who owns your loan, which rules apply, how the value will be determined, and whether you would pay for an appraisal.

Sources: CFPB: When you can remove private mortgage insurance · Fannie Mae Servicing Guide: Ending mortgage insurance

What paying extra is really worth

A useful way to judge extra payments is to compare the premium with the part of the loan it insures against. At the start of the example, the loan is $40,000 above 80% of the original value, and PMI costs $1,800 a year, equal to 4.5% of that $40,000. Paying that portion down sooner saves the mortgage interest on it and ends the premium, so each extra dollar works harder than the 6.50% rate alone suggests.

That does not make extra payments right for everyone. Paying $200 extra a month until month 64 puts $12,800 into the home that you cannot easily get back. If you do not yet have an emergency reserve, or you carry higher-rate debt, those usually come first. Refinancing to drop PMI after values rise is another option, but it brings new closing costs and a new rate, so compare it with a current-value removal request, which may cost only a valuation.

After PMI ends

Check the first statement after the cancellation date to confirm the premium is gone. If PMI was paid through your escrow account, the monthly payment should fall by the premium, $150.00 in the example. If it does not, contact your servicer in writing and keep a copy of the letter.

If you are deciding whether to use spare cash to reach 80% sooner or keep it in savings, compare the premiums you would avoid with the value of having the cash available. Money paid toward principal cannot be taken back out without borrowing against the home.

If your servicer turns down a request, ask for the reason in writing. The CFPB’s conditions point to the usual causes: a late payment in the prior year, a second lien on the home, or a property value below the original value. Fix what you can, keep your payments current, and ask again when the condition is met; automatic termination at 78% still applies on its original date either way.

Your next-step checklist

• Find the first cancellation date on your PMI disclosure.
• Confirm the original value your servicer uses.
• Keep payments current, with no late payments in the prior year.
• Ask who owns your loan and whether current-value removal is available.
• Send the cancellation request in writing and keep a copy.
• Check that the premium is gone from the next statement.