Published 2026-08-23
PMI: How to Avoid It, and How to Cancel It When You Already Pay It
Private mortgage insurance protects the lender and is paid by you. Federal law gives you the right to have it cancelled at a specific loan-to-value ratio — and the automatic termination the law also requires happens later than the point at which you could have asked.
Key takeaways
- You can request cancellation when the balance is scheduled to reach 80% of the home's original value.
- The servicer must terminate it automatically at 78%, and at the midpoint of the loan term regardless of the balance.
- The insurance protects the lender against your default. It pays you nothing.
- FHA mortgage insurance is a different scheme with different rules, and on most modern FHA loans it does not come off at all.
The short answer
Put down less than 20% on a conventional mortgage and the lender will require private mortgage insurance. It covers the lender's loss if you default, it is charged to you monthly as part of the payment, and it disappears once your equity is large enough.
The Homeowners Protection Act gives you two rights: you can request cancellation at 80% loan-to-value, and the servicer has to terminate it automatically at 78%. The gap between those two numbers is worth money, and closing it requires you to act.
The three cancellation triggers
All three are in the statute. The first is the one that requires you to do something.
| Trigger | What happens | What you have to do |
|---|---|---|
| 80% of original value | You may request cancellation | Ask in writing. Nothing happens if you do not |
| 78% of original value | The servicer must terminate it | Nothing, provided you are current on payments |
| The midpoint of the amortisation schedule | It must end the following month, whatever the balance | Nothing. On a 30-year loan this is after 15 years |
The conditions attached to a request
Cancelling at 80% is a right, not a courtesy, but it comes with conditions the statute sets out. Meet them and the servicer has to act.
- The request has to be in writing.
- You need a good payment history and you must be current.
- There must be no junior lien on the property — a second mortgage or a home equity line will block it.
- The servicer may require evidence that the value has not fallen below the original value, typically an appraisal at your expense.
Original value, not current value
This is the detail that catches people out. The 80% and 78% thresholds are measured against the original value of the home — the lesser of the purchase price and the appraised value at closing — not against what it is worth today.
So a rising market does not automatically get you to the threshold. Some servicers and investors do allow cancellation based on a new appraisal after a period of ownership, but that is a programme rule rather than a statutory right, and it varies.
Extra principal payments, by contrast, move the numerator directly. Paying ahead brings the scheduled 80% date forward, and that is the reliable lever.
FHA is a different scheme
An FHA loan does not carry PMI. It carries FHA mortgage insurance, which has two parts: an upfront premium financed into the loan, and an annual premium paid monthly.
The Homeowners Protection Act does not apply to it. On most FHA loans originated with a low down payment since 2013, the annual premium runs for the life of the loan — there is no 78% termination and no request you can make.
The way out is refinancing into a conventional loan once you have enough equity, which is a decision with its own costs. It is also the reason a small difference in down payment can change which programme is cheaper over ten years, quite apart from the rate.
Avoiding it in the first place
Four routes, each with a real cost. None of them is free, and the marketing for the last two often implies otherwise.
- Put down 20%. The clean answer, and the one that delays the purchase.
- Lender-paid PMI: the lender pays the premium and charges a higher interest rate instead. The cost is permanent and does not cancel at 78%.
- A piggyback second mortgage covering part of the down payment. It avoids PMI and adds a second loan, usually at a higher rate and often variable.
- A programme without mortgage insurance — a VA loan for eligible veterans, or a specific lender product. Check what replaces it, because something usually does.
Frequently asked questions
Does PMI protect me if I cannot pay?
No. It pays the lender if you default. Your obligation is unchanged, and a foreclosure is no less a foreclosure for the lender having been insured.
How much does PMI cost?
It varies with your down payment, credit score and loan type, and it is quoted as an annual percentage of the loan balance charged monthly. Your Loan Estimate shows the exact monthly figure before you commit.
Can I cancel PMI if my house has gone up in value?
Not as a statutory right — the legal thresholds are measured against the original value. Many servicers do have a programme allowing cancellation on a new appraisal after a period of ownership, so it is worth asking what yours offers.
Does refinancing get rid of it?
It can, if the new loan is at or below 80% loan-to-value on a current appraisal. Weigh that against the closing costs on the new loan, which is a break-even calculation rather than an obvious win.
Run the numbers
This guide explains the concept. These put your own figures on it.
- Mortgage Calculator (PITI + PMI)Estimate your monthly mortgage payment — principal, interest, property tax, insurance, and PMI.
- How Much House Can I Afford?Find the max home price your savings and income support (28/36 DTI rule), or plan your down payment savings.
- Extra Payment CalculatorSee how much you save by paying extra toward your loan principal, and whether to shorten your term or lower your payment.
Free and no sign-up, on financeinyourpocket.com — our sister site.
Terms used in this guide
- APR
- Annual percentage rate: the interest rate plus the lender's own costs — origination, discount points, some closing fees — spread across the life of the loan. It is almost always the higher of the two, and the gap between them is what the loan actually costs you to set up.
- Interest rate
- The yearly rate used to calculate the interest portion of your mortgage payment. On its own it tells you what the loan costs to borrow, not what it costs to get.
- Loan type
- Which program the mortgage runs through: conventional, FHA, VA or jumbo. The program sets the credit and down-payment floor, the insurance you have to carry, and the size of loan allowed.
- Time to close
- How long it takes from an accepted offer to the day the loan funds and the house is yours. It depends on the appraisal, the title search and your paperwork as much as on the lender.
Sources
- Consumer Financial Protection Bureau — When can I remove private mortgage insurance from my loan?
- Consumer Financial Protection Bureau — Owning a home — the mortgage process
- U.S. Department of Housing and Urban Development — FHA single family housing policy handbook 4000.1
The content provided on this site is for educational and informational purposes only and does not constitute financial, legal, or tax advice.