Takeaways
- Private mortgage insurance (PMI) is sometimes required to purchase a home.
- PMI payments are designed to shield mortgage companies from default
- PMI monthly payments can increase the cost of homeownership dramatically.
- PMI is not tax deductible and must be paid as part of your monthly mortgage bill.
- PMI can be avoided altogether by paying a large down payment, using a piggyback second mortgage, and other methods.
If you are like most new homeowners, private mortgage insurance (PMI) is one of those extra monthly expenses you would rather do without. Thankfully, PMI is not something you are stuck with forever. You can make smart money moves to eliminate this additional monthly expense and put money back in your pocket. Here’s how it works.
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What Is Private Mortgage Insurance?
Private Mortgage Insurance, or PMI, is an insurance policy that protects your mortgage lender in case you default on your mortgage payments. Typically, PMI is required when your down payment is less than 20% of the home's value. While PMI can make it easier for buyers to qualify for a mortgage without a large down payment, it increases overall housing costs significantly over time.
Smart Tip:
PMI usually costs between 0.5% and 2% of your original loan amount annually, divided into monthly payments.
For example, on a $300,000 home loan, you could pay an extra $1,500 to $6,000 per year in PMI alone—money you could invest or save elsewhere.
5 Ways to Get Rid of PMI
Ready to say goodbye to private mortgage insurance? Here are five actionable ways to get rid of it:
1. Pay a 20% Down Payment
The most straightforward way to eliminate PMI is by building equity in your home through regular mortgage payments. Once your principal loan balance reaches 80% of the home's original value, you are generally eligible to have PMI removed. All you need to do is ask your mortgage provider to cancel it.[1]
You can accelerate reaching the 80% threshold by making extra monthly payments toward your loan principal or applying bonuses and tax refunds to your mortgage. Additional principal payments can significantly reduce your outstanding balance and expedite shedding PMI.
Read More: 7 Ways to Pay Off Your Mortgage Quickly
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2. Submit a Request to Remove
Many homeowners mistakenly assume PMI removal is automatic at this point, but typically, it requires action on your part. You can proactively request your lender cancel your PMI once you have reached the critical 20% equity milestone (if you didn’t with your down payment).
Stay informed by regularly checking your mortgage balance statements and home value. Once you are confident you have hit the 20% equity mark, you should contact your mortgage lender and request the cancellation of PMI. Be prepared to provide documentation, such as proof of home improvements or an updated home appraisal, to support your request.
Need a lower mortgage payment? Learn How to Recast Your Mortgage
3. Wait for Automatic Cancellation
Federal law protects homeowners by requiring lenders to automatically cancel PMI once your mortgage balance drops to 78% of the original home value. This automatic cancellation ensures you do not pay PMI indefinitely.[2]
To benefit from automatic cancellation, ensure your payments are current because missed payments can delay the process. While waiting for automatic cancellation requires patience, it offers peace of mind knowing PMI will eventually be removed without further action on your part.
Related: What Is an Escrow Account?
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4. Refinance Your Mortgage
Refinancing your mortgage is another effective strategy to eliminate PMI, particularly if interest rates are declining or real estate appreciates quickly. When you refinance, you pay off your current loan and replace it with a new one.
For example, suppose your home's value has risen significantly since your initial purchase. In that case, refinancing can lower your loan-to-value (LTV) ratio below the critical 80% threshold, thus eliminating PMI from your monthly expenses. Refinancing offers other benefits, such as reduced interest rates and lower monthly payments, potentially saving you thousands of dollars over the life of your loan.
Before refinancing, weigh the costs (like closing fees and appraisal costs) against the benefits of removing PMI and lowering your interest rate. Refinancing can be a brilliant money move when interest rates are historically low because it can lock in long-term affordability.
5. Get a New Appraisal
Home values fluctuate based on market conditions, home improvements, and neighborhood developments. If property values in your area have increased significantly, obtaining a new appraisal could show you have reached or exceeded 20% equity ahead of schedule.
Once your new appraisal reflects the increased market value, submit this documentation to your lender requesting PMI cancellation. This proactive approach can significantly shorten the duration of paying PMI, especially in rapidly growing real estate markets.
Remember to account for appraisal fees when considering a new appraisal and ensure the potential savings outweigh the upfront costs. This approach is particularly beneficial if you have made substantial upgrades to your home, such as renovations or significant repairs, that enhance its overall value.
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Pros of Eliminating PMI
Reducing or eliminating PMI can significantly lower your monthly housing costs, providing more disposable income for:
- Cash Savings: You can save the recommended $1,000 - $3,000 for an emergency fund or stash three to six months’ worth of living expenses in a slush fund. Check out our picks for the best high-yield savings accounts.
- Stock Investing: Any extra monthly cash flow can go toward investing in stocks for the first time or topping off your investments. For those trying to retire early, you can add this additional investment to your retirement savings.
- Home Improvements: You might want to take out a personal loan to finance a home improvement project or simply pay with cash. Eliminating PMI can give you the cash flow to achieve your goals, whether you want a new office, extra bedroom, or backyard spruce-up.
- Buying Other Real Estate: Investing in real estate can be a smart money move. You may consider buying your first rental property or purchasing a vacation getaway. Either way, using extra cash flow by removing the need to pay PMI and investing can increase your net worth.
Smart Summary
Removing PMI does not have to be complicated. Understanding how PMI works and actively monitoring your home's equity position is crucial. Whether you accelerate your mortgage payments, proactively request PMI removal, wait for automatic cancellation, refinance your mortgage, or leverage increased property values through a new appraisal, each method provides a clear pathway to savings and home affordability.
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(1) Consumer Financial Protection Bureau. When can I remove private mortgage insurance (PMI) from my loan? Last Updated April 7, 2025.
(2) National Credit Union Administration. Overview. Last Updated April 7, 2025.
