Key insights
- Conventional loan borrowers are required to pay private mortgage insurance until their loan-to-value ratio reaches 80%.
- To cancel mortgage insurance, borrowers should contact their loan servicer in writing.
- Borrowers can make accelerated payments or re-appraise their homes to get insurance removed faster.
Mortgage insurance can be a tricky topic, especially when it comes to canceling existing payments. Here, we’re discussing all the details, including home mortgage insurance requirements and removal.
When are borrowers required to pay mortgage insurance?
The need for mortgage insurance is determined by your loan-to-value (LTV) ratio. To calculate your LTV ratio, take the total amount you borrowed in your mortgage loan and divide it by the value of the property that you purchased.
How loan-to-value ratios are calculated for a $400,000 house:
|
Percent down |
Money down |
Total loan amount |
LTV ratio at closing |
|
20% |
$80,000 |
$320,000 |
80% |
|
15% |
$60,000 |
$340,000 |
85% |
|
10% |
$40,000 |
$360,000 |
90% |
Here’s a faster way to think of it:
- If you put 20% of the home’s appraised value down at closing, your LTV ratio would be 80%.
- If you put down 15% at closing, your LTV ratio would be 85%.
- If you put 10% down at closing, your LTV ratio would be 90%.
If a borrower’s LTV ratio is above 80% at closing, lenders require monthly mortgage insurance premiums. Because borrowers who have lower LTV ratios put down 20% or more at closing, they are less likely to default on their loans and lenders typically do not require that they pay mortgage insurance.
When does private mortgage insurance get canceled?
After closing on a home purchase, conventional loan borrowers will be two important dates (assuming all payments were made according to schedule):
- The date when the LTV ratio will reach 80%, and their loan servicer is allowed to cancel the mortgage insurance upon written request from the borrower.
- The date at which the LTV ratio will reach 78%, and their loan servicer is required by the government to cancel the mortgage insurance.
Keep in mind, the above is true for conventional loan borrowers, who pay private mortgage insurance payments (PMI) until their LTV ratio reaches the minimum of 80%. FHA loan borrowers, on the other hand, pay an up-front mortgage insurance premium at closing along with monthly premiums for the life of their loan.
What steps can borrowers take to cancel their PMI?
The vast majority of loans are sold to loan servicers after closing. Your loan servicer is who you currently send your monthly mortgage payments to; this is also the entity that may be able to cancel your mortgage insurance. To be considered for mortgage insurance cancellation, you must:
- Have an 80% LTV, or better.
- Put your request in writing.
- Have a history of on-time mortgage payments.
- Not have any outstanding liens on your property.
Your servicer will then be in touch to inform you of their decision, or you can reach out to them first. “My guidance is, always call your loan servicer and talk to them,” said Edina Realty home mortgage consultant Enda Moore. “They will be able to guide you through the necessary steps to determine if you are eligible to have your monthly insurance premiums removed. The worst thing they’ll say is, ‘No, it’s not time yet.’”
How else can borrowers get their mortgage insurance requirements removed?
There are a few other ways to get your mortgage insurance removed before the dates specified at closing.
1. Make accelerated payments to remove PMI
Accelerated mortgage payments will help you pay off your loan premium faster than the schedule set by your lender. This means that your LTV ratio should drop to 80% before the original date you were given at closing. If you’ve made accelerated payments but aren’t sure of your current LTV ratio, follow this equation:
- Find your current loan balance on your latest statement.
- Divide that number by your home’s appraised value.
- Multiply this value by 100 to get your current LTV percentage.
2. Refinance your loan to remove PMI
While most borrowers consider refinancing a mortgage to take advantage of lower interest rates, refinancing is another method of eliminating mortgage insurance. If your home’s appreciation rises to the point where you have 20% equity, your insurance could be canceled or reduced.
Your lender can help you calculate if the cost of refinancing will save you money in the long term, after the cost of closing is factored in.
3. Get an appraisal to remove PMI
Last, you can get a home appraisal to see if your home’s value has increased. If the value has risen significantly (from the market or improvements you’ve made to the property), you can request a mortgage insurance cancellation from your loan servicer.
Be sure to contact your servicer before you go down this path, as they may have special requirements or rules for you to follow.
Moving forward to cancel your PMI
Mortgage insurance can be a tricky topic, but you don’t have to go it alone. The best way to determine your eligibility for removing PMI is to get in touch with your loan servicer. Reach out to Edina Realty or your agent if you have additional questions about moving forward with this process.
*Prosperity Home Mortgage, LLC does not offer financial advice. This information is provided for informational purposes only and does not constitute legal, tax, or financial advice. Not all borrowers will qualify.
Edina Realty Mortgage is an affiliate of Edina Realty. See Affiliated Business Arrangement Disclosure Statement
Prosperity Home Mortgage, LLC may operate as Prosperity Home Mortgage, LLC dba Edina Realty Mortgage in Minnesota and Wisconsin. ©2024 Prosperity Home Mortgage, LLC dba Edina Realty Mortgage. (877) 275-1762. 3060 Williams Drive, Suite 600, Fairfax, VA 22031. All first mortgage products are provided by Prosperity Home Mortgage, LLC. Not all mortgage products may be available in all areas. Not all borrowers will qualify. NMLS ID #75164 (For licensing information go to: NMLS Consumer Access at http://www.nmlsconsumeraccess.org/) Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. Licensed by the Delaware State Bank Commissioner. Georgia Residential Mortgage Licensee. Massachusetts Mortgage Lender and Mortgage Broker MC75164. Licensed by the NJ Department of Banking and Insurance. Licensed Mortgage Banker-NYS Department of Financial Services. Rhode Island Licensed Lender. Rhode Island Licensed Loan Broker. Rhode Island Licensed Third-Party Loan Servicer. Also licensed in AK, AL, AR, AZ, CO, CT, DC, FL, ID, IL, IN, KS, KY, LA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NM, NV, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV and WY.
