Private mortgage insurance represents an extra charge you pay along with your mortgage to protect your lender against losing money if you default on your home. PMI does not protect you. It is usually required if your down payment is smaller than 20 percent of your home’s value. If you took out your mortgage after July 29, 1999, you can request that your lender terminate PMI when you reach 20 percent equity in your home. If you took out your mortgage prior to that date, your lender is under no obligation to remove the PMI at all, at least under federal law, but a state law may apply or your lender may do so voluntarily. If you do not make the request, and your mortgage was taken out after July 29, 1999, your lender must usually terminate PMI when you reach 22 percent equity in your home even if you don't request it.
Compare your current home value to the home’s value at the time you took out the mortgage. The equity needed to cancel PMI is the smaller of the two values. Your lender may require an appraisal to verify that your home has not decreased in value.
Multiply the smaller of the current home value or the value when you took out the mortgage by 20 percent to figure the equity needed to request the cancellation of PMI. For example, say the home was worth $230,000 and it hasn't declined in value. Multiply $230,000 by 0.2 to find you need at least $46,000 in equity to cancel PMI.
Subtract the amount of equity needed from the value to find the point to which you need to pay down your mortgage to cancel PMI. In this example, subtract $46,000 from $230,000 to find you need to pay down your mortgage to less than $184,000 before you can terminate PMI.
- If your loan is classified as one with high risk, you may have to attain a higher percentage of equity before you can stop paying PMI.
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