How to Cancel Your Private Mortgage Insurance (PMI): A Step-by-Step Guide

If you’re a homeowner with a mortgage, you may be paying for private mortgage insurance (PMI), especially if you put less than 20% down when you bought your home. The good news? You might be able to cancel your PMI, saving you hundreds or even thousands of dollars each year. In this guide, we’ll walk you through the process of canceling Borrower-Paid PMI (BPMI) based on insights from Radian’s mortgage insurance cancellation guidelines, helping you understand when and how to take action.

What Is PMI, and Why Can You Cancel It?

PMI protects lenders in case a borrower defaults on their mortgage, and it’s typically required when your down payment is less than 20%. According to Radian, a leading mortgage insurance provider, PMI allows borrowers to purchase a home sooner with a smaller down payment. However, under the Homeowners Protection Act (HPA), you may be eligible to cancel your BPMI once you meet specific criteria, reducing your monthly mortgage payments.

When Can You Request to Cancel PMI?

You can request to cancel your BPMI when your mortgage balance reaches 80% of your home’s original value, based on the initial amortization schedule. Here’s what you need to qualify:

  • Good Payment History: Your mortgage payments must be current, with no payments 30+ days late in the last 12 months and no payments 60+ days late in the last 24 months. If your loan is less than 24 months old, this applies to the time you’ve held the loan.
  • No Subordinate Liens: Your home must not have secondary loans or liens against it.
  • Property Value Verification: Some lenders, as well as investors like Fannie Mae or Freddie Mac, may require proof that your home’s value hasn’t decreased, often through an appraisal, Broker Price Opinion (BPO), or Comparative Market Analysis (CMA).

Additionally, automatic PMI termination is required when your loan balance hits 78% of the original home value or when you reach the midpoint of your loan’s amortization period, provided your payments are current. For modified loans, eligibility must align with applicable laws and investor guidelines.

Special Rules for Fannie Mae and Freddie Mac Loans

If your loan is backed by Fannie Mae or Freddie Mac, there are additional guidelines to consider:

  • 1-Unit Principal Residence or Second Home:
    • Borrower-Initiated Cancellation: You can request cancellation when the loan balance reaches 80% of the original property value.
    • Automatic Termination: PMI must be terminated when the balance hits 78% of the original value or at the loan’s amortization midpoint.
  • 2-4 Unit Principal Residence or Second Home:
    • Fannie Mae: Cancellation is possible at 70% of the original value; automatic termination occurs after the amortization midpoint.
    • Freddie Mac: Cancellation is possible at 65% of the original value, but automatic termination isn’t available.
  • Current Value-Based Cancellation:
    • For 1-unit properties, Fannie Mae allows cancellation when the loan-to-value (LTV) ratio is 75% or less (if the loan is 2-5 years old) or 80% or less (if over 5 years old or with significant property improvements). Freddie Mac allows cancellation at 75% LTV for 1-unit properties and 65% for 2-4 unit properties.

How to Request PMI Cancellation

Canceling PMI involves a few straightforward steps, but it’s critical to follow your loan servicer’s requirements. Here’s what to do:

  • Contact Your Loan Servicer: Reach out to your mortgage servicer to confirm their specific cancellation process and required documentation. This may include proof of payment history, an appraisal, or other information about your loan or property.
  • Submit a Cancellation Request: Once you’ve gathered the necessary documents, send a formal request to your servicer to cancel your BPMI. The servicer will verify that your loan meets HPA requirements and notify the PMI provider (e.g., Radian) to cancel coverage.
  • Check for a Refund: Depending on your PMI product, you may be eligible for a refund of unearned premiums. However, refunds are processed only after the servicer notifies the PMI provider, so ensure prompt communication.

Important Notes

  • Servicer Responsibilities: It’s the servicer’s job to verify eligibility and notify the PMI provider promptly. PMI coverage continues until the provider receives this notice, so follow up with your servicer to avoid delays.
  • Potential Costs: Be prepared for costs like an appraisal or BPO, which some servicers require to confirm your home’s value.
  • Investor Guidelines: Fannie Mae and Freddie Mac may have additional requirements or “overlays,” so check with your servicer for details.

Take Control of Your Mortgage Payments

Canceling your PMI can lower your monthly mortgage costs, putting more money back in your pocket. By understanding the HPA requirements and working closely with your loan servicer, you can take advantage of this opportunity as soon as you’re eligible. If you’re unsure about your loan balance or cancellation process, contact your servicer today to get started.

Disclaimer: This blog is for informational purposes only and does not cover all details of the Homeowners Protection Act or Fannie Mae and Freddie Mac’s PMI cancellation guidelines. Consult legal counsel and refer to the appropriate Fannie Mae or Freddie Mac Servicing Guides for complete details. Always verify cancellation requirements with your loan servicer. For more information on PMI cancellation, visit the U.S. Department of Housing and Urban Development (HUD) website at www.hud.gov.

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