Removing PMI from Your Mortgage

Advice from an Agent: Brandy Goulet

Private Mortgage Insurance, or PMI, is insurance that protects your lender if you default on your loan. It is typically required if you purchased your home with less than 20% down or your loan-to-value ratio (LTV) was over 80%.

Under the Homeowners Protection Act, lenders generally must automatically remove PMI when your loan balance reaches 78% of the original value of your home, as long as you’re current on your payments. Keep in mind—this is based on the original value of your home, not what it may be worth today.

If you purchased your home in the last several years, there’s a good chance its value has increased. That could mean you have more equity than you realize and may be able to remove PMI sooner.

Step 1: Figure out your current equity.
Take your current loan balance and divide it by your home’s estimated current value. For example, if you owe $240,000 and your home is worth $300,000, your LTV is 80%, meaning you have 20% equity.

Step 2: Check the age of your loan.
Many lenders require you to have had your mortgage for at least two years before using your home’s increased value to remove PMI. Between 2–5 years, some may require a 75% LTV. After five years, the standard 80% LTV may apply.

Step 3: Contact your lender.
Requirements can vary, but your lender may ask for:

• A formal PMI removal request

• Proof of value, usually through a lender-ordered appraisal

• A good payment history with no recent late payments

• Information about any second mortgages or liens

Why Does This Matter?

Because PMI can add up! If you’re paying $225 per month, that’s $2,700 per year. If your home has appreciated and you’ve built enough equity, it may be worth making a quick call to your lender to see if you still need to pay it.

Sometimes a little home equity can go a long way toward putting some extra money back in your pocket!