Look, here's the deal. I talk to borrowers every single week who are confused about PMI, and honestly? I get it. You're making the payment, but it doesn't benefit you directly. It feels like throwing money into a black hole.
Private mortgage insurance exists to protect your lender if you can't make your mortgage payments. According to the Urban Institute's Housing Finance Policy Center, PMI typically costs between 0.46% and 1.50% of the original loan amount per year. On a $300,000 mortgage, that's $1,380 to $4,500 annually. Real money that could go toward your emergency fund or retirement.
But here's what most people don't realize: PMI isn't permanent. The Homeowners Protection Act of 1998, also called the PMI Cancellation Act, established clear rules for when and how you can get rid of this expense. And there are actually multiple strategies to eliminate it faster than the standard timeline.
Last week I had a borrower in Dallas call me, frustrated because she'd been paying PMI for three years and assumed she was stuck with it until the loan was paid off. Turns out her home had appreciated enough that she could request cancellation immediately. She just didn't know the rules. That's $2,400 a year back in her budget.
So PMI applies to conventional loans when you put down less than 20%. But mortgage insurance shows up in different forms depending on your loan type, and the rules for getting rid of it vary quite a bit.
Borrower-Paid Mortgage Insurance (BPMI)
This is the most common type, and frankly, the easiest to eventually eliminate. You pay a monthly premium that's added to your mortgage payment. According to MGIC's consumer resources, BPMI can be cancelled once you reach 20% equity in your home, and it must automatically terminate at 22% equity if your mortgage payments are current.
Lender-Paid Mortgage Insurance (LPMI)
This one's trickier. Your lender pays the PMI premium upfront, but they're not doing you a favor. They're building the cost into your interest rate. You'll typically get a rate that's 0.25% to 0.50% higher than if you paid PMI separately. The catch? LPMI never comes off your loan. You're stuck with that higher rate unless you refinance entirely.
Split-Premium PMI
Pay part upfront at closing, then smaller monthly amounts. This reduces your monthly payment compared to regular BPMI, but you're still on the hook for ongoing premiums until you hit that equity threshold.
Single-Premium PMI
The whole PMI premium gets paid in one lump sum at closing. Sellers or builders sometimes cover this cost as an incentive. Once it's paid, you don't have monthly PMI charges. But if you refinance or sell within a few years, you won't get any of that prepaid premium back.
For comparison, FHA loans require Mortgage Insurance Premiums (MIP) instead of PMI. According to HUD's official mortgage insurance documentation, FHA charges 1.75% upfront plus an annual premium that varies based on loan term and down payment. For most 30-year FHA loans with standard down payments, the annual rate was 0.55% in 2025. Here's where it gets frustrating: for FHA loans originated after June 3, 2013, MIP sticks around for the life of the loan if you put down less than 10%. Even with 10% down, you're paying MIP for 11 years minimum.
The amount you pay for PMI isn't pulled from thin air. Several specific factors determine your rate, and understanding them helps you strategize how to reduce or eliminate the cost.
Your Down Payment Size
This is the biggest driver. Put down 5%, and you'll pay significantly more than someone who puts down 15%. The closer you get to that 20% threshold, the lower your PMI cost. According to Clever Real Estate's PMI analysis, PMI rates typically range from 0.19% to 1.86% of your loan amount annually, with the loan-to-value ratio being a primary factor.
$250,000 Home Purchase - PMI Cost Breakdown
Your Credit Score
Here's where things get interesting. According to firsttuesday Journal, PMI rates in March 2025 averaged 0.68% for conventional loans with a 5% down payment. But that's an average. Your actual rate varies based on credit.
Borrowers with credit scores below 640 might pay PMI rates approaching 1.50% or higher. Meanwhile, someone with a 760+ credit score and the same down payment could pay as little as 0.46% annually, according to the Urban Institute data. That's the difference between $383 and $115 monthly on a $300,000 mortgage.
Loan Type and Property Details
Adjustable-rate mortgages typically carry slightly higher PMI costs than fixed-rate loans because they represent additional risk. Investment properties and multi-unit homes face even steeper requirements, which we'll get into later.
Your debt-to-income ratio also factors in. Lenders view borrowers with DTI ratios above 43% as higher risk, which can push your PMI rate toward the higher end of the range.
Alright, so you're paying PMI and you want it gone. The federal Homeowners Protection Act establishes three critical thresholds that determine when PMI goes away.
20% Equity: Your Right to Request Cancellation
Once your loan balance drops to 80% of your home's original value, meaning you've built 20% equity, you can submit a written request to cancel PMI. Your servicer must honor this request if you meet certain conditions:
That last point trips people up. If you bought at the peak of a market bubble and values have dropped, you might not qualify for cancellation even if your loan balance calculation shows 20% equity based on the purchase price.
22% Equity: Automatic Termination
This is your safety net. Even if you never request cancellation, your servicer must automatically terminate PMI once your loan balance reaches 78% of the original property value (that's 22% equity), as long as your payments are current. The Consumer Financial Protection Bureau enforces this requirement.
Loan Midpoint: Final Termination
Here's a protection most people don't know about: PMI must terminate by the midpoint of your loan term even if you haven't reached 22% equity yet. For a 30-year mortgage, that's month 180. For a 15-year loan, it's month 90. This protects borrowers in situations where the home value declined after purchase.
"Wait, can I get a new appraisal to show my home's current value instead of the original purchase price?"
Yes, but with conditions. If you're basing your cancellation request solely on home appreciation without any improvements, most lenders require you to have 25% equity and wait at least two years from the loan origination date. After five years, the 20% equity threshold applies even for appreciation-only requests.
If you've made substantial home improvements, and I mean documented improvements, not just fresh paint, you can request cancellation at 20% equity. You'll need receipts, permits where applicable, and a professional appraisal. The appraisal typically costs $300 to $600, according to industry standards, but it's worth it if the increased value pushes you over the equity threshold.
I just helped a couple in Fort Worth who'd finished a major kitchen renovation. They'd put $35,000 into the project, added about $50,000 in value, and were able to eliminate $185 monthly PMI payments. Even with the $450 appraisal fee, they broke even in less than three months.
This is the most direct path to 20% equity. Every dollar you pay above your required mortgage payment goes straight to reducing your principal balance, bringing you closer to that magic LTV ratio.
Let me walk you through a real scenario. Say you have a $280,000 mortgage at 7.5% interest on a 30-year term. Your required monthly payment for principal and interest is $1,958. Your loan starts at 90% LTV (you put down 10%).
To reach 80% LTV, you need to pay your balance down to $248,889 (assuming no home appreciation). That's $31,111 in additional principal reduction beyond your regular payment schedule.
If you add just $200 extra per month toward principal, you'll reach 20% equity in roughly 3.5 years instead of 7.8 years under the normal amortization schedule. That's cutting your PMI obligation in half. At a PMI rate of 0.75%, that's $2,100 annually you'll stop paying 4.3 years sooner, saving about $9,030 total.
Before you start sending extra payments, call your servicer to confirm:
Home values have been volatile lately. If you bought in a market that's appreciated significantly, a new appraisal might show you've already hit 20% equity through value growth alone.
According to the Consumer Financial Protection Bureau's PMI guidance, you'll typically need to wait at least two years from your original purchase date to request an appraisal based on appreciation. And as I mentioned earlier, lenders usually require 25% equity if you haven't made improvements.
Here's the calculation:
Current Market Value: $320,000
Original Purchase Price: $280,000
Appreciation: $40,000 (14.3%)
Current Loan Balance: $252,000
Current LTV: 78.75%
In this scenario, even though you've gained substantial appreciation, you're just shy of the 75% LTV threshold many lenders require for appreciation-only cancellation requests. You might need to combine this strategy with a few extra principal payments to get over the line.
Major renovations can boost your home's value enough to justify PMI removal. But you need to prove it with documentation.
Cosmetic updates like paint, landscaping, or minor fixture changes usually don't count. You'll need receipts, contractor invoices, permits (if required), and before/after photos. Then order a full appraisal, not a BPO (Broker Price Opinion) or drive-by assessment.
Example calculation:
Original home value: $300,000
Original loan amount: $285,000 (95% LTV)
Current loan balance: $278,000
Improvements: $40,000 in documented renovations
New appraised value: $350,000
New LTV: 79.4%
That's below 80%, qualifying for PMI removal. The $450 appraisal fee pays for itself in about 2.5 months of eliminated PMI payments.
If you've built equity but have LPMI that won't come off, or if you want to combine PMI removal with a better interest rate, refinancing might work.
Refinancing comes with closing costs, typically 2% to 5% of the loan amount. On a $250,000 refinance, that's $5,000 to $12,500. You need to calculate your break-even point.
Break-even calculation:
Current payment with PMI: $1,890 ($1,678 P&I + $212 PMI)
New refinanced payment: $1,610 (new rate, no PMI)
Monthly savings: $280
Closing costs: $6,500
Break-even: 23.2 months
If you plan to stay in the home longer than two years, refinancing makes financial sense in this scenario.
AmeriSave Mortgage Corporation offers streamlined refinance options that can help you eliminate PMI while potentially lowering your interest rate. Our loan advisors can run a complete cost-benefit analysis to determine if refinancing makes sense for your specific situation.
If you've received a windfall, work bonus, inheritance, tax refund, or investment gains, consider using it to pay down your mortgage principal in one shot.
Let's say your loan balance is $195,000 and your home's original value was $230,000. You need to get down to $184,000 to hit 20% equity. That's $11,000 in principal reduction needed.
If you receive a $15,000 bonus, allocating $11,000 to your mortgage principal gets you to PMI cancellation immediately. At $160 monthly PMI, that $11,000 investment pays for itself in about 69 months (5.75 years) in avoided PMI payments. Plus, you're reducing the total interest you'll pay over the loan term.
Sometimes people don't realize they've already hit the threshold based on their original payment schedule. This happens most often when:
Check your original loan documents for the amortization schedule. Find the date when your balance is scheduled to reach 80% LTV based on regular payments. If that date has passed and you're current on payments, you can request immediate cancellation without an appraisal.
Your servicer must provide annual statements showing when you'll reach these thresholds. If you can't find yours, call and request it. The information should include:
Some lenders offer mortgage recasting. You make a large lump sum payment toward principal, usually $5,000 minimum, and the lender recalculates your monthly payment based on the new, lower balance while keeping your interest rate and remaining term the same.
Recasting typically costs $250 to $500, much less than refinancing. If the principal reduction gets you to 20% equity, you can request PMI cancellation at the same time.
Not all lenders offer recasting, and it's usually not available for FHA, VA, or USDA loans. Call your servicer to ask about availability and requirements.
If you don't want to take active steps, PMI will eventually disappear on its own. At 22% equity based on your original property value, or at your loan's midpoint, whichever comes first, your servicer must automatically terminate PMI.
For someone with a $300,000 home who put down $15,000 (5%), automatic termination happens when the loan balance drops to $234,000, or at month 180 of a 30-year mortgage, whichever occurs first.
This is the path of least resistance, but it's also the most expensive. You'll pay thousands more in PMI premiums versus actively pursuing earlier cancellation.
In rare cases where the original appraisal seems questionable, such as if nearby comparable sales suggest your home was undervalued at purchase, you might challenge it with a new appraisal immediately after closing.
This is a long shot and usually only works if there's clear evidence of appraisal error. But if successful, it could establish a higher original value, meaning your loan balance as a percentage of property value is lower than initially calculated. Consult with a real estate attorney if you're considering this route.
So far we've focused on single-family primary residences. The rules change significantly for investment properties and multi-unit homes (2-4 units).
Fannie Mae Properties
If Fannie Mae owns your loan, PMI automatically cancels at the loan's midpoint for investment properties. For borrower-requested cancellation based on original value, you need 30% equity, not 20%. Even after two years, if you want to use current market value (including appreciation), you still need 30% equity.
Freddie Mac Properties
Freddie Mac requirements are even stricter. There's no automatic midpoint cancellation for investment properties. Regardless of the reason for your request, you need to demonstrate 35% equity.
If you're requesting removal based on original value or home improvements, there's no waiting period. But if you're relying solely on market appreciation, you must wait at least two years from origination.
Why the Difference?
Investment properties and multi-unit homes carry higher default risk. When borrowers face financial hardship, they're more likely to prioritize payments on their primary residence. The stricter equity requirements protect lenders against this elevated risk.
Let's run through an example. You purchased a duplex for $450,000 with a $427,500 loan (95% LTV). Your loan is owned by Freddie Mac.
Scenario 1: Original Value Cancellation
Current balance: $405,000
Original value: $450,000
Required balance for 35% equity: $292,500
You need to pay down an additional $112,500. This will take years unless you make aggressive principal payments.
Scenario 2: Appreciated Value Cancellation
Current balance: $405,000
Current market value: $550,000
Required balance for 35% equity: $357,500
You're already well below this threshold. After the two-year waiting period, you can order an appraisal and request cancellation.
The waiting periods and equity requirements matter. Plan accordingly when buying investment property.
The Homeowners Protection Act of 1998 provides specific protections for borrowers. Congress enacted this law specifically because lenders weren't consistently canceling PMI even when borrowers had built substantial equity.
Required Lender Disclosures
At closing, your lender must provide written notice of:
They must also provide this information annually. Many borrowers never read these notices, which is how people end up paying PMI longer than necessary.
Cancellation Requirements
When you request PMI cancellation, your servicer can require:
The servicer must respond within 30 days and provide written confirmation of cancellation.
Penalties for Non-Compliance
Lenders who violate HPA requirements face civil liability. Courts can award actual damages plus interest, statutory damages up to $2,000 for individual actions or $500,000 for class actions, plus attorney fees and court costs.
Despite these penalties, violations happen. If your servicer refuses to cancel PMI when you've met all requirements, document everything and consider filing a complaint with the Consumer Financial Protection Bureau.
The Homeowners Protection Act doesn't cover:
If you have one of these loan types, you'll need to follow different procedures.
Mistake #1: Not Tracking Your Equity
Most borrowers don't actively monitor their loan balance in relation to their home's value. They just keep making payments. I've seen people pay PMI for two or three years past the point where they could have requested cancellation.
Your servicer should provide annual statements, but don't rely on them to proactively cancel. Set a calendar reminder to check your equity position twice a year.
Mistake #2: Assuming Appreciation Alone Gets You There
Market appreciation feels great, but most lenders won't accept it for PMI cancellation without that two-year waiting period and 25% equity threshold. Don't count on rising property values as your sole strategy.
Mistake #3: Missing the Written Request Requirement
Federal law requires a written cancellation request. Phone calls, emails to your loan officer, or casual inquiries don't start the official clock. Send a formal letter via certified mail or use your servicer's online cancellation request system if available.
Mistake #4: Neglecting Property Maintenance
If your property condition has deteriorated significantly, the lender might refuse cancellation even if your numbers look good on paper. Deferred maintenance, code violations, or obvious disrepair can sink your cancellation request.
Mistake #5: Not Understanding LPMI
I cannot stress this enough: lender-paid mortgage insurance never comes off your loan. That slightly higher interest rate is permanent unless you refinance. Too many borrowers choose LPMI thinking they'll "pay less monthly" without realizing they're locked into higher payments for 15 or 30 years.
Mistake #6: Failing to Follow Up
Submit your cancellation request and then... crickets. Call your servicer two weeks after submitting to confirm receipt and timeline. The squeaky wheel gets the grease, and mortgage servicers handle thousands of accounts. Make sure yours doesn't fall through the cracks.
Since we're deep into mortgage insurance, let's clear up the confusion between different types.
PMI (Private Mortgage Insurance)
MIP (Mortgage Insurance Premium - FHA)
VA Funding Fee
USDA Guarantee Fee
The key difference: Only conventional PMI offers a realistic path to cancellation during the loan term without refinancing.
Let's talk about opportunity cost because not everyone should get rid of PMI right away.
Think about this: you have an extra $10,000 to spend. You can choose:
The current balance on the loan is $270,000.
You are halfway there with your $10,000 payment. You'd still need $12,000 more to reach 20% equity. With this payment alone, you won't be able to get rid of your PMI yet because it costs $180 a month.
Over ten years, $10,000 put into a diversified portfolio that has historically returned 8% a year will grow to $21,589.
In the meantime, your $180 monthly PMI ($2,160 yearly) will keep going until you reach the equity threshold by paying down your principal regularly. That could take four more years and cost a total of $8,640.
In this case, the investment option probably gives better returns, especially when you think about:
If you're only $5,000 away from getting rid of PMI and that $10,000 payment gets you there right away, saving $2,160 a year, that's a guaranteed 21.6% return on your $10,000 investment in the first year. It's hard to beat that with investments in the stock market.
The math is personal. Do your own math.
Wait, do you really want to keep PMI? Listen to me.
If you got a 3% mortgage rate in 2021 and now rates are 7%, refinancing to get rid of LPMI would raise your rate by 4%. That costs a lot more than PMI that keeps going.
Putting $30,000 into principal reduction to get rid of $150 in PMI each month leaves you with no money. You can't get that money back if you need it in an emergency unless you refinance or open a HELOC, which both take time and money.
If you want to sell in two years or less, it might not be worth it to spend $500 on an appraisal and time managing PMI cancellation. Sometimes the easiest thing to do is just pay it off until you sell.
I work for AmeriSave, so I have a clear bias. But we've helped thousands of borrowers figure out how to get rid of PMI.
AmeriSave Mortgage Corporation has:
Are you ready to get rid of PMI? This is what you need to do:
There is a reason for private mortgage insurance. It helps people buy homes without having to wait years to save up a 20% down payment. But if you're actively building equity, it shouldn't be a long-term cost.
Most borrowers can get rid of PMI in 2 to 5 years instead of the 7 to 10 years that most amortization schedules suggest, thanks to the Homeowners Protection Act's automatic protections and the different ways to speed up the process.
The most important thing is to take action. Know your rights, keep an eye on your equity, and do something when you reach those limits.
If you have LPMI, please know what you signed up for. The higher interest rate will always be there. If interest rates go down or you build up equity, look into refinancing.
I tell all the people I work with who are borrowing money that PMI is not a permanent part of owning a home; it's just a way to help you buy one. If you follow the steps in this guide, you can get rid of it as soon as possible, which will save you thousands of dollars over the life of your loan.
Yes, for sure. If you have 20% equity in your conventional loan, you can ask for PMI to be canceled without changing any other part of your loan. Send your servicer a written request to cancel your loan, showing that your loan-to-value ratio has dropped to 80% based on either the original value of your home or a new appraisal. The servicer must approve your request if you meet all requirements including current payment status and no secondary liens. This is different from refinancing and doesn't need a new loan application, a credit check, or closing costs. If you have lender-paid mortgage insurance, though, you're stuck with that rate structure unless you refinance into a whole new loan. This is because the lender paid your PMI premium upfront in exchange for a higher interest rate.
The Homeowners Protection Act says that servicers have 30 days to respond to your written request to cancel. If you've sent in all the right paperwork and clearly meet all the requirements, most servicers will process approvals within 15 to 20 business days. Once your request is approved, PMI will be taken off your next bill, which means that your first mortgage payment without PMI usually happens 1 to 2 months after you made your request. If your request needs a new appraisal, it will take the appraiser an extra 2 to 3 weeks to finish their work and send the report to your servicer. Usually, the slowest part is waiting for the appraisal, not how long it takes the servicer to process it. Some servicers take their time, which is why it's important to call them regularly. If you haven't heard back in 30 days, you should move up your request and think about filing a complaint with the Consumer Financial Protection Bureau. Delays longer than the legal time limit could be against the law.
No, improvements don't guarantee immediate cancellation, but they do make it possible to cancel in a way that pure appreciation doesn't. Even if you've made a lot of documented improvements that raise the value of your home, you still need to show 20% equity based on a new professional appraisal. Your lender will want a lot of paperwork, like receipts, contractor invoices, permits if you need them, and before-and-after photos that show how much work was done. Some improvements are more important than others. Adding a bedroom or remodeling the kitchen is more important than making cosmetic changes like painting or landscaping. Not just what a real estate agent thinks the property is worth, but a licensed appraiser that your lender trusts must do the appraisal. If the appraisal shows that the value of your home has gone up enough to bring your LTV below 80%, and you meet all the other requirements, such as being up to date on your payments, then you can cancel. If the appraiser says that your improvements only added a little value and you're still above 80% LTV, you'll keep paying PMI until you reach the threshold through either more improvements or a lower principal.
With borrower-paid PMI and monthly premiums, you don't get a refund when you sell because you only paid for insurance coverage during the months you had the mortgage. You weren't paying premiums in advance that need to be returned. But if you paid single-premium PMI, which means you paid the full premium up front at closing, either by you or as a seller concession, you probably won't get a refund either. This is because that premium paid for the insurance for the whole time you expected it to be in effect. Some single-premium PMI policies will give you some money back if you pay off the loan in the first few years. However, these are rare and the amount of the refund is usually small. If you refinance instead of selling the house, any refund from single-premium PMI will go toward paying off the old loan instead of going to you directly. This is why single-premium PMI is best for buyers who plan to stay in the house for a long time, not for those who might sell or refinance in the next five years. The fact that there are no refund options is exactly why borrower-paid monthly PMI is better for homeowners whose plans might change.
No, but it does happen in real life. If you've built up 20% equity in your home based on its original value, haven't missed a payment in the last year, don't have any subordinate liens, and sent in a proper written request, federal law says that your servicer has to cancel PMI. However, servicers may refuse or delay cancellation by saying that the requirements haven't been met, asking for more paperwork, or saying that the property's value has gone down and needs to be verified. Even if the cancellation is based on the original amortization schedule, they might still need an appraisal, which isn't always legal. If you've clearly met all the legal requirements and your servicer won't help, keep a record of everything, including copies of your request, proof of equity calculation, payment history, and any other communications. If you want to complain about PMI cancellation compliance, go to consumerfinance.gov and file a complaint with the Consumer Financial Protection Bureau. You can also send your servicer a formal letter of dispute that cites certain parts of the Homeowners Protection Act. If you're facing damages from wrongfully keeping PMI premiums, you should talk to a consumer protection lawyer in very serious cases. If lenders break the HPA, they can be sued for up to $2,000 for each violation plus attorney fees. This means that hiring a lawyer is possible in cases where the violation is clear.
Your financial situation, how much risk you're willing to take, and how much money you could make by doing something else all play a role in this. If you put down 20%, you won't have to pay PMI at all, which could save you thousands of dollars in premiums and make your monthly payment easier. A 20% down payment makes sense if you don't want to take risks, value predictability, and don't have better investment options. But if you know how to invest and the market is giving you good returns, you might be able to build more wealth over time by putting down less and investing the difference. For a $300,000 home, 20% down means you need $60,000, and 10% down means you need $30,000, which leaves you with $30,000 to invest. If you pay $150 a month for PMI and put that $30,000 difference into an investment that earns 8% a year, your investment will be worth about $64,676 in 10 years. In the meantime, you paid about $12,000 in PMI over those years, assuming you never canceled early. You have $30,000 invested, $34,676 in growth, and $12,000 in PMI paid, which means you are about $52,676 ahead of having that money tied up in home equity. But this assumes that investment returns will always be the same, which isn't guaranteed, and it doesn't take into account the psychological benefits of making lower monthly payments and building equity faster with a bigger down payment. For most first-time buyers who don't have a lot of money saved up, putting down less than 20% and accepting temporary PMI is the best option. This gets you into homeownership faster, so you can take advantage of property appreciation while also saving money.
The main difference is money and control. If you have 20% equity, you can ask to cancel by calling your servicer and sending them proof that you've reached the threshold in writing. You can choose when to end the PMI payments, and you can save a few months' worth of payments because they don't end automatically until you have 22% equity. That gap is 2% of the value of your home when you first bought it. Depending on your payment schedule and home value, it could take months or even years to close. For instance, if the original value is $300,000, the difference between 20% and 22% equity is $6,000 less in principal. If you have a 30-year mortgage with a 7% interest rate and are making regular principal and interest payments, it could take 8 to 12 months to close the $6,000 gap. At typical rates, this would cost you $1,200 to $1,800 in unnecessary PMI premiums. To cancel proactively at 20%, you'll need to do some work, like keeping an eye on your loan balance, gathering paperwork, and sending in the formal request. But that hour or two of work will save you a lot of money. At 22%, automatic termination is really passive. Once you reach that point, your servicer must cancel PMI without you doing anything. However, you will have paid extra premiums for months that you could have avoided.
No, there aren't any tax breaks for PMI right now in 2026. Before 2021, Congress let some taxpayers deduct PMI from their taxes if they met certain income requirements. However, this rule ended after the 2021 tax year and has not been renewed. People who borrowed money and had adjusted gross incomes below $100,000 could deduct PMI premiums as qualified mortgage insurance paid, just like they could deduct mortgage interest. The deduction started to go away for people who made between $100,000 and $109,000, and there was no deduction available for people who made more than that. It is possible that Congress will bring back the PMI deduction in the future, but you shouldn't expect to get tax breaks from PMI when you make financial decisions. This means that PMI is just an extra cost with no tax benefit to balance it out. This makes the case for getting rid of it as soon as you reach the equity thresholds even stronger. If you itemize your deductions, you can still deduct the interest on your mortgage and the property taxes you pay through escrow up to the $10,000 SALT cap. However, PMI itself does not provide any tax benefits right now. Tax laws change all the time, and everyone's situation is different, so it's always best to talk to a qualified tax professional about your own situation.
The basic rules for getting rid of PMI are the same for both adjustable-rate mortgages and fixed-rate loans. However, the ways they figure out when you've reached the cancellation thresholds are a little different. When you have a fixed-rate mortgage, your payment never changes, so you can always know exactly when your loan balance will reach 80% and 78% of the original property value. When you cancel an ARM, the calculation uses the current amortization schedule, not the original one. This is because your payment and amortization schedule change every time your rate changes. This means that if your ARM rate goes up a lot, you are building equity more slowly than you thought you would, which could push back your automatic termination date. On the other hand, if rates go down and your ARM adjusts down, you might reach the equity thresholds sooner than you thought. The good news is that your servicer must give you updated information every year about how your ARM's current terms affect your path to cancellation. When you ask to have PMI removed from an ARM with 20% equity, you should check your payment history and use your current loan balance, just like you would with a fixed-rate mortgage. The Homeowners Protection Act protects both types of loans in the same way. This means that you have the same rights to cancel at 20% and get automatic termination at 22% equity, no matter if your rate is fixed or adjustable.
FHA mortgage insurance premiums are much more strict than regular PMI. The only way to get rid of them depends on when you got your loan and how much you put down. If you got an FHA loan after June 3, 2013, and you put down less than 10%, you will have to pay MIP for the whole loan term. The only way to get rid of it is to refinance into a different loan type once you have at least 20% equity. If you put down 10% or more on an FHA loan after that date, MIP will end automatically after 11 years of payments. For FHA loans that were closed before June 3, 2013, MIP cancellation works more like regular PMI. It ends automatically when you have 22% equity based on the original property value and have made at least five years of payments. Because of these rules, a lot of FHA borrowers refinance into regular loans after their credit score has gone up and they have built up enough equity since they bought the FHA. If you bought your home when interest rates were higher, refinancing could help you get a lower interest rate and get rid of MIP completely. To decide whether to refinance, you need to compare your current FHA payment, which includes MIP, to the payment on a new conventional loan, which includes all closing costs. When you have 20% equity, it may make sense to refinance right away. Sometimes, though, it makes more sense to keep the FHA loan until you have 25 to 30% equity because conventional PMI rates go down as your LTV ratio goes up. AmeriSave Mortgage Corporation is an expert in FHA-to-conventional refinances that get rid of MIP and often lower monthly housing costs.
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