How to Cancel Private Mortgage Insurance

by Laura Acevedo, Demand Media

    Private mortgage insurance, often called PMI, offers your mortgage lender financial protection if you default on your home loan. It is generally required on a mortgage loan if you will have less than 20 percent equity, or ownership, in your home at the time of purchase. Private mortgage insurance lowers the down payment required when purchasing your home in exchange for an extra fee added to your routine mortgage payment. Canceling your PMI can lower your ongoing mortgage expense.

    Step 1

    Pay down your mortgage. Based on the Homeowner’s Protection Act of 1998, you are eligible to cancel PMI when the outstanding mortgage loan amount is 80 percent or less of your home’s value. You can pay down your mortgage gradually through your standard payments, or you can make extra payments toward your mortgage principal to accelerate your home equity.

    Step 2

    Obtain a home appraisal. Canceling private mortgage insurance requires knowing your outstanding mortgage-to-home loan value. Your home’s value is based on the lesser value between the original appraisal that was conducted when you purchased your home and a recent appraisal. If you believe your home may have appreciated in value, you may be able to get out of your PMI obligations sooner by getting a new home appraisal. Likewise, if your home has a lower value than your original appraisal, you may need to pay more before you are able to cancel your PMI.

    Step 3

    Monitor your equity. As you get close to the magic 20 percent equity amount in your home, monitor your exact ownership percentage so you can cancel the PMI as soon as you are eligible. Subtract your mortgage balance from the estimated value of your home to determine your equity. Divide your equity by the value of your home and multiply your results by 100 to determine your home equity percentage.

    Step 4

    Contact your mortgage lender’s customer service department to inquire about the PMI cancellation process. Requirements may include proof of your home’s current property value, an on-time payment history and a formal written letter requesting PMI cancellation.

    Step 5

    Wait for automatic cancellation. If you prefer not to perform the actions required by your lender to remove the PMI once you achieve 20 percent equity, you can wait until your mortgage lender is legally required to cancel the insurance. Automatic PMI termination occurs once you reach 22 percent equity in your home and you are current on your loan obligations. If you had a high-risk loan, you may need to achieve 23 percent equity prior to automatic cancellation.

    About the Author

    Laura Acevedo has been a professional writer for more than 15 years. With a background in business, international relations, psychology and technology, Acevedo writes from both experience and an educational foundation. She holds a Master of Business Administration from the University of North Florida and undergraduate degrees in business and psychology.