Mortgage payments are a grind. You see that extra line item every month—Private Mortgage Insurance—and it feels like throwing money into a black hole. It doesn’t build equity. It doesn’t lower your interest. It just protects the bank in case you stop paying. Most homeowners find themselves staring at their statements wondering exactly when does a pmi go away so they can finally reclaim that $100, $200, or $500 a month.
The short answer? It’s usually when you hit 20% equity. But the reality is a lot messier than a simple math problem.
If you bought your house with less than 20% down, you’re stuck with it for a bit. It’s the price of admission for getting a home without a massive pile of cash. But you aren't stuck forever. There are three distinct "exit ramps" for PMI, and if you don't know the difference between automatic termination and requested cancellation, you might end up paying for insurance you no longer need for years.
The Magic Number: 80% vs. 78% LTV
Let’s get into the weeds. Under the Homeowners Protection Act of 1998, also known as the PMI Act, you have a federal right to get rid of this cost. But the bank isn't always going to tap you on the shoulder the second it’s time.
There is a huge difference between you asking and them doing it.
When your loan-to-value (LTV) ratio hits 80%, you can request cancellation in writing. This is based on the original value of the home—what you paid for it or the appraised value at closing, whichever was lower. You have to be current on your payments. You can't have a history of late checks. If you meet those criteria, the lender is generally required to drop the PMI.
Then there is the "automatic" threshold. This happens at 78% LTV.
By law, the lender must terminate the PMI on the date your principal balance is scheduled to reach 78% of the original value. They do this automatically. But here is the catch: it's based on the original amortization schedule. If you’ve been throwing extra money at your principal every month, the "automatic" termination might not kick in early. The computer just looks at the original calendar. You’d still have to request it manually once you hit that 80% mark to see the savings sooner.
Does Your Home Value Actually Matter?
This is where most people get tripped up. Let's say you bought a house for $300,000 three years ago. Suddenly, the market goes nuts, and Zillow says your house is worth $450,000.
You’re thinking, "Hey, I have way more than 20% equity now! When does a pmi go away in this scenario?"
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It doesn't happen automatically. Not even close.
Standard PMI rules are tied to the original purchase price. If you want to use your new, higher market value to kill off PMI, you are usually playing by "Lender Requirements" rather than the federal "PMI Act" rules. Most conventional lenders (Fannie Mae and Freddie Mac) allow you to drop PMI based on current value, but they usually require you to have owned the home for at least two years.
If you’ve owned it for 2 to 5 years, they usually want your LTV to be 75% or lower based on a new appraisal. If you’ve owned it for over 5 years, 80% is the standard.
You’ll have to pay for a new appraisal. It’ll cost you maybe $500 or $600. Is it worth it? If your PMI is $150 a month, you make that money back in four months. It’s a no-brainer. But you have to initiate the conversation. Your servicer isn't watching the local real estate trends for you. They’re happy to keep collecting that premium as long as the law allows.
The FHA Problem: It Might Never Go Away
If you have an FHA loan, everything I just said might be irrelevant.
FHA loans don't have "PMI." They have "MIP" (Mortgage Insurance Premium). It’s essentially the same thing for your wallet, but the rules for getting rid of it are way stricter.
If you put down less than 10% on an FHA loan (which is most people, since the draw is the 3.5% down payment), that MIP stays for the entire life of the loan. It doesn't matter if you hit 22% equity or 50% equity. The only way to stop paying it is to refinance into a conventional loan once you have enough equity to avoid PMI on the new loan.
If you put down 10% or more on an FHA loan, the MIP stays for 11 years.
Refinancing sounds great until you look at interest rates. If you bought in 2021 with a 3% interest rate and FHA insurance, but current rates are 6.5%, you might actually pay more per month by refinancing just to get rid of the insurance. You have to do the math. Sometimes the "insurance" is cheaper than the higher interest rate.
Aggressive Ways to Speed Up the Process
If you're tired of waiting for the calendar to flip, you can force the issue.
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Renovations are a sneaky way to win. If you finish a basement, add a bedroom, or do a high-end kitchen remodel, you can request a BPO (Broker Price Opinion) or a new appraisal. If these improvements significantly jump the value of the home, you can hit that 80% LTV threshold years ahead of schedule.
Just keep receipts. The lender will want to see that the value increase came from "substantial improvements," not just the neighborhood getting trendier.
Another way is the "Principal Only" payment.
Even an extra $50 or $100 a month applied directly to the principal cuts months off your PMI timeline. It’s a double win: you pay less total interest over the life of the loan, and you reach that 80% mark faster.
Why Lenders Make It Difficult
Lenders aren't necessarily evil, but they are risk-averse. PMI protects them, not you. If you default and the house is only worth 85% of what you owe, the insurance company pays the lender the difference.
Because of this, they will hold you to the letter of the law.
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- You must have a "good payment history." Usually, this means no payments 30 days late within the last year, and no payments 60 days late within the last two years.
- The property must be your primary residence (rules for investment properties or second homes are much tougher).
- There can't be subordinate liens. If you took out a HELOC (Home Equity Line of Credit) to fix the roof, that counts against your total LTV. If your first mortgage plus your HELOC equals more than 80% of the value, the PMI stays.
Real World Example: The "Wait and See" Trap
Take a couple who bought a home in Austin, Texas in 2019 for $400,000. They put 5% down. Their PMI was $180 a month.
By 2022, the house was worth $600,000.
Technically, their LTV was now roughly 60%. They were well past the 20% equity mark. However, their lender didn't stop the PMI. Why? Because the automatic termination is based on the original $400,000 price. On paper, according to the original schedule, they still owed $360,000, which is 90% of the original value.
They had to call the bank, request an appraisal, pay the fee, and submit a formal request. Once they did, the PMI was gone in 30 days. Had they waited for the "automatic" drop, they would have been paying that $180 a month until roughly 2028.
That is over $12,000 in unnecessary payments.
Actionable Steps to Cancel Your PMI
If you think you're close to that 20% mark, don't just sit there. Follow this sequence:
- Check your statement. Look at your current principal balance. Compare it to what you originally paid for the house. If that balance is 80% of the purchase price, call your lender immediately.
- Research your local market. Look at recent "comps" (comparable sales) in your neighborhood. If houses like yours are selling for significantly more than you paid, you might have reached 20% equity through appreciation alone.
- Call your servicer. Ask specifically: "What are your requirements for a 'Value-Based PMI Cancellation'?" Every bank has a slightly different internal policy. Some use a BPO (cheaper), some require a full appraisal (pricier).
- Put it in writing. While a phone call starts the process, the PMI Act requires a written request. Send a formal letter via certified mail so you have a paper trail.
- Clean up your credit. Ensure you haven't missed any payments. If you're in the middle of a dispute with the bank over a late fee, settle it before you ask to drop the PMI. They will use any excuse to keep the policy active.
- Verify the drop. Once they agree to cancel it, check your next mortgage statement. Make sure the line item is actually gone and your total monthly payment has decreased.
PMI is a tool that helps you get into a home sooner, but it’s a tool with a high shelf life. Knowing exactly when does a pmi go away requires you to be proactive. If you wait for the bank to do the right thing, you’re almost certainly leaving money on the table. Take control of the timeline, pay for the appraisal if the math works out, and stop insuring the bank's risk with your hard-earned cash.