Own Luxury Homes®
What Is PMI and When Does It Go Away?
PMI: 0.5–1.5%/yr ($150–$400/mo). Cancel at 20% equity (written request); auto-cancel 22% (HPA law). FHA MIP does NOT auto-cancel (<10% down) — must refinance to remove. Conventional PMI usually beats FHA MIP for buyers expecting equity growth. Own Luxury Homes® 12-Point Agent Integrity Audit™ — specialists who explain loan type costs first.
What Is PMI and When Does It Actually Go Away?
PMI (private mortgage insurance) is required on conventional loans when you put less than 20% down. It protects the lender if you default, not you. The key fact most buyers do not know: PMI is temporary and cancellable. Once you reach 20% equity, you can request cancellation. At 22% equity, the lender is legally required to cancel it automatically under the Homeowners Protection Act of 1998. This page explains how to accelerate that timeline.
PMI Cost and What It Adds to Your Payment
| Loan Amount | PMI Rate (0.85% annual, typical) | Monthly PMI | Annual PMI | ||
|---|---|---|---|---|---|
| $200,000 | 0.85% | $142/month | $1,700 | ||
| $300,000 | 0.85% | $213/month | $2,550 | ||
| $400,000 | 0.85% | $283/month | $3,400 | ||
| $500,000 | 0.85% | $354/month | $4,250 | ||
| PMI rate varies by credit score and LTV. Rates typically range from 0.5% to 1.5% annually. Higher credit scores produce lower PMI rates. | |||||
Three Ways to Eliminate PMI
1. Reach 20% Equity and Request Cancellation
Under the Homeowners Protection Act, you can request PMI cancellation when your loan balance reaches 80% of the original purchase price. This happens through principal payments and does not require a new appraisal in most standard cases. Submit a written request to your servicer. They must cancel within 30 days if your payment history is current and you have no subordinate liens.
2. Wait for Automatic Cancellation at 22%
When your loan balance reaches 78% of the original purchase price (based on amortization schedule, not current value), the lender must automatically cancel PMI under federal law. No action required from you. This happens at a predictable date you can calculate from your amortization schedule.
3. Refinance (Requires Current Appraisal)
If your home has appreciated significantly, a new appraisal may show you already have 20%+ equity based on current value — even if your original LTV was higher. A refinance eliminates PMI and potentially lowers your rate, but closing costs run $3,000–$6,000 and must be recovered before it pays off.
How to Accelerate to 20% Equity
| Method | How Fast It Works | Cost |
|---|---|---|
| Wait for natural amortization (standard payments) | 5–8 years at current rates for 5% down | $0 extra |
| Make additional principal payments each month | Proportional to extra payments; $100/mo extra on $400K = 2+ years faster | Cost of extra payments |
| Make a lump-sum principal payment | Could reach 20% immediately if equity is close | Cost of lump sum |
| Home appreciation (rising market) | Depends on appreciation rate; 3%/yr on $400K home = ~$12K/yr | $0; passive |
PMI vs MIP: The FHA Difference
FHA loans have mortgage insurance but it works differently:
| Feature | Conventional PMI | FHA MIP (Mortgage Insurance Premium) | |||
|---|---|---|---|---|---|
| Required when? | Under 20% down | All FHA loans regardless of down payment | |||
| Upfront cost | $0 | 1.75% of loan upfront (can be financed into loan) | |||
| Annual cost | 0.5–1.5% of loan | 0.55% of loan for most 30-year loans | |||
| Goes away? | Yes: at 20% equity (request) or 22% (automatic) | Life of loan if <10% down; 11 years if 10%+ down | |||
| How to eliminate? | Request cancellation or wait for auto-cancel | Must refinance to conventional once you have 20%+ equity | |||
| FHA MIP for life of loan is the most important cost difference between FHA and conventional loans for buyers with improving credit. | |||||
“PMI is one of the most misunderstood costs in homeownership. Buyers treat it as a permanent fee, when in reality it goes away — and the date it disappears is calculable on the day you close. On FHA, that’s different: the MIP persists unless you refinance. If you’re choosing between 3% conventional with PMI and 3.5% FHA with MIP, run the 7-year cost comparison before deciding. For buyers with improving credit, conventional usually wins.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What is PMI on a mortgage?
Private mortgage insurance, required on conventional loans with less than 20% down. Protects the lender if you default. Typically costs 0.5–1.5% of the loan annually ($150–$400/month on most loans). PMI is temporary and legally cancellable once you reach 20% equity.
When does PMI go away?
You can request cancellation when your loan balance reaches 80% of original purchase price (20% equity). Lender must automatically cancel at 78% LTV (22% equity) under the Homeowners Protection Act. Refinancing can eliminate it sooner if your home has appreciated significantly.
Is FHA mortgage insurance the same as PMI?
No. FHA has two mortgage insurance types: upfront MIP (1.75%) and annual MIP (0.55%/year). Unlike conventional PMI, FHA MIP does not automatically cancel if you put less than 10% down. To remove FHA MIP, you must refinance to a conventional loan once you have 20%+ equity.
How can I get rid of PMI faster?
Make additional principal payments each month to reach 20% equity faster. If your home appreciates significantly, request an appraisal and submit a written cancellation request. Or refinance if rates have dropped and you now have 20%+ equity based on current value.
Own Luxury Homes® — audited specialists who help you understand PMI, MIP, and the loan type decision before you close. 12-Point Agent Integrity Audit™. Find your specialist now ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)