02 What you need to know
How private mortgage insurance works and when it can be removed
PMI, or private mortgage insurance, protects the lender, not you, if a conventional loan defaults. It is usually required when you put less than 20% down, meaning your LTV (loan-to-value ratio: loan amount divided by the home’s value) is above 80%.
The federal Homeowners Protection Act of 1998 sets the baseline rules for most conventional loans on a primary residence. They are all measured against original value: the lower of the purchase price or the appraised value when you bought.
Three ways PMI ends under the law
- You request cancellation at 80%. Once your balance reaches 80% of original value, either on the original payment schedule or sooner because you paid extra, you can ask in writing. You generally need a good payment history, must be current, and may need to show the value hasn’t dropped and there are no second liens.
- Automatic termination at 78%. The servicer must end PMI when your balance is scheduled to reach 78% of original value, as long as you’re current.
- Final termination at the midpoint. If neither has happened, PMI ends the month after the loan’s midpoint, which is month 181 on a 30-year loan, if you’re current.
Appreciation can open another door
Many conventional servicers also allow cancellation based on today’s value with a new appraisal or valuation. Fannie Mae’s servicing rules, for example, generally require the loan to be at 75% LTV or less if it is two to five years old, or 80% or less after five years. Substantial improvements, such as a kitchen remodel or added square footage, can shorten the waiting period.
FHA is different
FHA loans carry MIP (mortgage insurance premium), not PMI, and the HPA timelines don’t apply. For FHA loans with case numbers assigned on or after June 3, 2013, annual MIP lasts 11 years if you started at 90% LTV or less, and for the life of the loan if you started above 90%. Many FHA borrowers remove it by later refinancing into a conventional loan.
03 Real-world example
When PMI could come off an $800,000 purchase with 5% down
You buy an $800,000 home with 5% down: $40,000 down and a $760,000 loan, which is 95% LTV. Here is where the PMI milestones fall.
| Milestone | Principal paid down | On schedule |
|---|---|---|
| Request cancellation (80%) | $120,000 | Month 130 (≈ 10.8 years) |
| Automatic termination (78%) | $136,000 | Month 142 (≈ 11.8 years) |
| Final termination (midpoint) | — | Month 181 |
Extra principal shortens the 80% request date
| Extra principal each month | Balance reaches $640,000 |
|---|---|
| $0 | Month 130 (≈ 10.8 years) |
| $300 | Month 98 (≈ 8.2 years) |
| $500 | Month 84 (7 years) |
| $1,000 | Month 62 (≈ 5.2 years) |
Assumptions: hypothetical 7% fixed rate, 30-year term, principal and interest of $5,056.30 per month, used for illustration only and not a rate offer. Original value is the $800,000 purchase price (assumes the appraisal came in at or above price). Extra payments start in month 1 and apply fully to principal. Taxes, insurance and the PMI premium itself are not shown; premiums vary by credit, LTV and insurer.
Appreciation can move faster than amortization. On this schedule your balance after three years is about $735,100. If a new valuation then showed roughly $980,200 or more, you would be near 75% LTV on current value, which is the kind of threshold Fannie Mae servicers look for on loans two to five years old.
04 What most people overlook
What most people overlook about PMI cancellation
- Automatic termination ignores your extra payments. The 78% date is based on the original amortization schedule. Paying ahead gets you to 80% sooner, but you have to ask. The servicer won’t necessarily remove it for you early.
- Not every policy falls off after two years. The two-year mark matters for the current-value route on many conventional loans, but it is not a blanket rule, and it does not apply to FHA MIP at all.
- Payment history counts. Recent late payments can block a cancellation request even when the balance qualifies.
- Lender-paid MI is a different animal. If the lender paid the mortgage insurance in exchange for a higher rate, there is no monthly premium to cancel. The cost lives in your rate until you refinance or pay off the loan.
- Second homes and investment properties aren’t covered by the HPA’s automatic rules, though the investor’s own policies may still allow cancellation.
Know your 80% date, your 78% date, and your servicer’s current-value rules on day one. Put a reminder on your calendar. PMI is easiest to drop when you’re the one tracking it.
05 How I’d approach it
How I think about PMI when you’re buying
Don’t automatically wait until you have 20% down to buy. Sometimes paying PMI temporarily makes sense.
When a client is deciding between buying now with less down and waiting to save 20%, I compare real quotes, not rules of thumb. I price the PMI for their credit and LTV and set it against how long it would take to save the rest.
- I quote borrower-paid monthly PMI, single-premium, and lender-paid options side by side, because each one exits differently.
- I map out the 80% and 78% dates on the actual loan and show what a modest extra payment does.
- I check whether keeping more cash in reserve, instead of stretching to 20%, leaves you on safer footing after move-in.
On an FHA loan, I plan the conventional refinance path from the start, so the MIP has a clear exit if rates and your equity cooperate.