What private mortgage insurance is, and how to make it go away

Private mortgage insurance (PMI) is an insurance product that protects the lender (not the borrower) when the borrower puts less than 20% down on a conventional loan.2 It exists because the loan-to-value ratio (LTV) exceeds 80%, and the insurance covers some of the lender's loss in case of foreclosure. The borrower pays the premium, the lender receives the protection.

PMI is not free, and it's not insignificant. Annual rates typically range from 0.32% to 0.85% of the loan amount, depending on LTV and credit profile. On a $400,000 loan, that's $1,300–$3,400 per year, paid monthly as part of the mortgage payment. Knowing how to make it go away (sooner rather than later) is one of the better-paying knowledge investments for borrowers who finance with under 20% down.

How PMI is structured

Most PMI is paid monthly as part of the regular mortgage payment. The lender collects the premium and remits it to the mortgage insurance company. A few less-common variants exist: single-premium PMI (paid as a lump sum at closing in exchange for no monthly premium), lender-paid PMI (the lender absorbs the premium in exchange for a slightly higher interest rate), and split-premium PMI (a mix of upfront and monthly).

The monthly approach is the most common for first-time buyers because it doesn't require additional cash at closing. The trade-off is that the borrower pays more in total over time if PMI stays in place for the full pre-cancellation period.

The 78% / 80% / 22% rules

Federal law (the Homeowners Protection Act of 1998) requires lenders to cancel PMI automatically when the loan-to-value ratio reaches 78% on the original amortization schedule.1 The borrower doesn't have to do anything, the lender is required by law to drop the PMI charge from the monthly payment when the schedule indicates 78% LTV.

The borrower can also request cancellation earlier, at 80% LTV on the original schedule, in writing. The lender can require evidence that the home value hasn't dropped below the original purchase price (an appraisal or a broker price opinion) and that the borrower is current on payments.

A third path: if the home has appreciated, the borrower can request cancellation based on current value rather than original schedule. This sometimes gets PMI cancellation years earlier than the original schedule would. The lender typically requires an appraisal at the borrower's expense ($400–$600), and Fannie Mae rules allow this approach after the loan has seasoned for at least two years (with somewhat more flexible terms for substantial improvements that increased the home's value).3

The math: on a 30-year loan at 7% rate with 5% down, the original schedule reaches 78% LTV around year 11. Reaching 80% LTV (where the borrower can request cancellation) takes about year 9. With home appreciation, both timelines compress meaningfully, a home that appreciates 3% per year might reach 80% LTV based on current value in year 5 or 6.

How to actually request cancellation

The process involves a written request to the loan servicer (the company collecting the monthly payment, which may or may not be the original lender). The request should reference the Homeowners Protection Act and ask for cancellation. The servicer responds with their specific requirements, typically: confirmation that the borrower is current on the loan, no second mortgages on the property, and either evidence of the LTV calculation (using the original purchase price for the 80% threshold) or an appraisal (for current-value cancellation).

If the servicer requires an appraisal, the borrower pays for it and chooses from a list the servicer provides. If the appraisal supports the LTV claim, the servicer cancels PMI going forward, usually starting the next monthly payment. The borrower doesn't get refunded for premiums already paid.

Servicers don't always make this easy. Some require multiple forms, some take their time responding, some require specific phrasing. The CFPB has resources on what borrowers' rights are and what to do if a servicer is non-responsive.2

What's different for FHA and VA loans

PMI specifically refers to private mortgage insurance on conventional loans. FHA and VA have their own insurance structures that work differently:

FHA charges a mortgage insurance premium (MIP), with an upfront component (1.75% of loan amount, usually rolled into the loan balance) and a monthly component (typically 0.50%–0.85% annually). For loans with original LTV above 90%, MIP stays for the life of the loan, there is no automatic cancellation, regardless of how much equity the borrower builds. For loans with original LTV at or below 90%, MIP drops off after 11 years. The "MIP for life" rule is the largest hidden cost of FHA loans relative to conventional, and it's why many FHA borrowers refinance to conventional once they have enough equity to drop PMI under conventional rules.

VA loans don't have monthly mortgage insurance at all. They have a one-time funding fee (typically 1.25%–3.30% of loan amount, often rolled into the financed balance), but no monthly insurance charge. This is one of the larger reasons VA loans tend to have lower monthly costs than comparable FHA or conventional loans for the borrower's eligible.

The conventional-FHA-VA comparison article goes into this in more detail.

A reasonable frame

PMI is a real cost, often a few hundred dollars a month, and it disappears either automatically (at 78% LTV on the original schedule) or by request (at 80% LTV, or earlier with current-value evidence). Borrowers who finance with under 20% down should know which threshold they're closest to and what the servicer requires for cancellation. The few hours of attention this takes once or twice during the life of the loan typically pays for itself many times over. For FHA borrowers, the equivalent move is usually a refinance to conventional once enough equity is built, that's how FHA's lifetime MIP gets unwound.