How to remove PMI when your home value has gone up

I received a phone call from my past client who purchased her first house back in year 2021. He asked me if she can remove her PMI on her loan. She sounded excited, but also a little unsure. Back when she bought, she only put a small amount down, so PMI was just part of the deal. Now, after watching home values climb in her neighborhood, she wanted to know if she could finally stop paying that extra monthly insurance.

If you are in a similar spot, you are not alone. A huge number of first time buyers purchased with less than 20 percent down. PMI helped them get into a home sooner, but nobody wants to keep paying it longer than necessary. The good news is that PMI is not meant to be permanent on most conventional loans. If your equity has grown because your balance went down, your value went up, or both, you may be able to remove it earlier than you think.

What PMI is, in plain English

PMI stands for private mortgage insurance. It is a monthly charge added to many conventional mortgages when the down payment is under 20 percent. It protects the lender, not you. The lender is taking more risk when the loan is a larger share of the home’s value, so PMI is their safety net. Once your equity reaches certain levels, the lender either must remove it automatically or allow you to request cancellation.

How PMI normally comes off on a conventional loan

There are two common ways PMI ends.

One is automatic removal. Your mortgage servicer is required to stop PMI when your loan balance is scheduled to reach 78 percent of the original purchase price, as long as you are current on your payments. This is built into the loan schedule you started with at closing.

The other is borrower requested removal. You can ask your servicer to cancel PMI once your balance reaches 80 percent of the original value. Most lenders want to see a solid payment history and they may confirm that the home has not lost value.

So even without any market growth, PMI usually goes away eventually just through regular payments. But appreciation can speed that up.

How rising home values help you remove PMI sooner

This is where my 2021 client comes in. Her loan balance had not dropped all the way to 80 percent of what she paid in 2021. But her home value today was much higher. That meant her equity, based on current value, was already over 20 percent.

Many lenders will allow PMI removal based on today’s value, but they usually want proof through a new appraisal. Most servicers follow a seasoning rule, meaning the mortgage typically needs to be at least 2 years old before they consider current value for PMI cancellation, unless you have major documented improvements. Once an appraisal is done, the lender recalculates your loan to value ratio using that new number.

A common guideline works like this. If your loan is between 2 and 5 years old, the appraisal usually needs to show that your equity is at least 25 percent. If your loan is older than 5 years, 20 percent equity is often enough. Every servicer can be slightly different, but this is the pattern many homeowners run into.

What to do if you want to remove PMI now

Start by calling your mortgage servicer, not your bank branch, and tell them you want to request PMI cancellation based on current market value. Ask them to explain their process in writing. They will usually review your payment history, check whether you have any second loans like a HELOC that affect total loan to value, and then order an appraisal through their own appraiser. You pay for that appraisal.

If the appraisal supports the required equity level, PMI should be removed going forward. You will see it disappear from your monthly statement.

One important note if your loan is FHA

This part matters because many first time buyers used FHA financing. FHA does not charge PMI. It charges mortgage insurance premiums, called MIP, and the rules are different.

If your FHA loan closed on or after June 3, 2013 and your down payment was less than 10 percent, MIP typically stays for the life of the loan unless you refinance into a conventional mortgage. If your down payment was 10 percent or more, MIP generally ends after 11 years. Older FHA loans can follow different rules, but many still require refinancing to remove the monthly insurance.

So if you have an FHA loan and your value has risen, the most common way to stop the insurance is refinancing into a conventional loan once your equity and credit profile make sense.

Is it worth the effort

In most cases, yes. PMI can add up to real money over time. Paying for an appraisal can feel annoying, but if it removes PMI months or years early, the savings usually outweigh the cost.

In areas like the DC metro and Northern Virginia, appreciation has been strong enough that many 2020 and 2021 buyers are already sitting on more equity than they realize. If you bought with 5 percent or 10 percent down, there is a decent chance you qualify.

A quick way to estimate your chances

Before you spend money on an appraisal, look at recent closed sales of homes truly similar to yours nearby. If they are selling for well above what you paid, that is a strong sign. Online estimates can help you get a rough feel, but remember lenders rely on appraisals, and appraisals can be more conservative than the internet.

<<Andy Kim's thought>>

I told my client the same thing I will tell you. PMI helped you get into your home. That was a win. But if your equity is there now, you do not need to keep paying an insurance premium that was designed to be temporary. A simple call to your servicer may lower your monthly payment without changing anything else about your life.

If you want, tell me whether your loan is conventional or FHA, when you bought, and roughly where the property is. I can help you ballpark whether your appreciation likely puts you over the line before you order an appraisal.