How to Eliminate PMI: A Complete Guide to Removing Mortgage Insurance

What Is PMI and Why Does It Exist?

Private Mortgage Insurance is required by lenders when you make a down payment of less than 20% on a conventional loan. From the lender's perspective, a smaller down payment means higher risk — if you default, the lender may not recover the full loan amount when selling the property. PMI offsets that risk by insuring the lender against loss.

PMI rates typically range from 0.3% to 1.5% of the original loan amount per year, depending on your credit score and down payment percentage. On a $300,000 loan with a 0.7% PMI rate, you are paying $2,100 per year — or $175 per month — for insurance that benefits your lender, not you.

Use the PMI calculator to see exactly how much PMI is costing you and when it will drop off based on your specific loan details.

When PMI Automatically Drops Off

The Homeowners Protection Act of 1998 establishes clear rules for PMI cancellation on conventional loans:

Important: these rules apply to conventional loans only. FHA loans have different rules for mortgage insurance, covered below.

Strategies to Remove PMI Faster

1. Make extra principal payments

The most straightforward approach. Extra payments go directly to principal, reducing your loan balance faster and reaching the 80% LTV threshold sooner. Even an extra $200 per month can shave years off your PMI obligation. Check with your lender to ensure extra payments are applied to principal, not future payments. Use the PMI calculator to see how extra payments accelerate your PMI removal date.

2. Request a new appraisal

If your home has appreciated significantly since you bought it, a new appraisal could show that you already have 20% or more equity based on the current market value. Most lenders will consider this after you have made at least two years of payments. The appraisal costs $300-$500, but if successful, the savings from eliminating PMI are immediate and substantial. Some lenders accept a Broker Price Opinion (BPO) instead, which costs less.

3. Make home improvements that increase value

Strategic renovations can boost your home's appraised value, pushing you past the 20% equity mark. Focus on improvements with high return on investment: kitchen updates, bathroom remodels, adding usable square footage, or finishing a basement. Minor cosmetic upgrades rarely move the appraisal needle enough to matter.

4. Refinance to a new loan

If your home has appreciated and your equity exceeds 20%, refinancing into a new conventional loan with no PMI can make sense — especially if you can also secure a lower interest rate. Factor in closing costs (2-5% of the loan amount) to make sure the savings justify the expense. The refinance calculator helps you crunch the numbers.

5. Make a lump-sum payment

If you receive a bonus, inheritance, or other windfall, applying a lump sum to your mortgage principal can quickly push you below the 80% LTV threshold. Before making a large payment, contact your lender to confirm the process for requesting PMI removal once you hit the target balance.

Alternatives to PMI

Piggyback loans (80/10/10)

A piggyback loan structure uses a first mortgage for 80% of the home price, a second mortgage (home equity loan or HELOC) for 10%, and a 10% down payment. Since the first mortgage is at 80% LTV, no PMI is required. The second mortgage carries a higher interest rate, but the combined cost may be less than a single mortgage with PMI. This structure works best when you have 10% to put down but not 20%.

Lender-paid PMI (LPMI)

With LPMI, the lender pays the mortgage insurance in exchange for a slightly higher interest rate (typically 0.25-0.5% more). There is no separate PMI charge on your monthly statement. The downside: you cannot cancel LPMI because it is built into your rate. You would need to refinance to get rid of it. LPMI can be a good option if you plan to sell or refinance within a few years, since you benefit from the lower monthly payment without committing to long-term higher rates.

VA loans

If you are an eligible veteran, active-duty service member, or surviving spouse, VA loans require no down payment and no PMI — ever. VA loans charge a one-time funding fee (1.25-3.3% of the loan) that can be financed into the loan, but there is no ongoing monthly insurance cost.

Save for a 20% down payment

The simplest way to avoid PMI altogether is to put 20% down. While it takes longer to save, you will start with more equity, a lower monthly payment, and often a better interest rate. Use the down payment calculator to plan your savings timeline and compare the cost of different down payment amounts.