What Is PMI (Mortgage Insurance) — and How to Cancel It

What it is

PMI (private mortgage insurance) is an insurance premium commonly required on conventional loans when you put down less than 20%. It’s an extra charge added to your mortgage payment.

The key thing to understand: PMI protects the lender, not you. If a borrower defaults, PMI reimburses the lender for part of its loss. You pay the premium, but the coverage is for the lender’s benefit — it does not pay off your mortgage or protect your equity (the share of the home you own outright — its value minus what you owe).

Why it exists

A smaller down payment means the lender is financing a larger share of the home’s value, which is riskier for them. PMI offsets that risk, which is what allows lenders to approve loans with as little as 3–5% down. In effect, PMI is the price of buying with less than 20% down on a conventional loan.

(Government-backed loans handle this differently — FHA loans, for instance, carry their own mortgage insurance with separate rules. PMI specifically refers to the private insurance on conventional loans.)

How to remove it: the HPA thresholds

The federal Homeowners Protection Act (HPA) sets borrower protections for PMI on most conventional loans, based on your loan-to-value (LTV) ratio measured against the home’s original value (usually the lower of the purchase price or original appraised value):

• 80% LTV — you may REQUEST cancellation. Once your loan balance reaches 80% of the original value, you can ask the servicer in writing to cancel PMI. Cancellation typically requires that your payments be current, that you have a good payment history, and sometimes that you show the home hasn’t lost value.
• 78% LTV — automatic termination. When the balance reaches 78% of the original value, the servicer must automatically terminate PMI, provided you’re current on payments. You don’t have to ask.
• Midpoint termination. If neither threshold is hit, PMI generally must end at the loan’s amortization (the loan’s normal payoff schedule) midpoint (as long as you’re current).

These are protections administered under the HPA; check with your servicer for the exact requirements on your loan.

Other removal paths

Beyond the HPA schedule, PMI may come off sooner if your equity grows faster than the original amortization assumed:

• A new appraisal. If the home’s value has risen (or you’ve made improvements) so your equity is well above 20%, some servicers let you request PMI removal based on a new appraisal. Requirements and required equity levels vary by servicer and how long you’ve held the loan.
• Extra principal payments. Paying down the balance faster reaches the 80%/78% thresholds sooner.
• Refinancing. If you refinance into a new loan and your equity is at or above 20%, the new loan generally won’t carry PMI. Whether refinancing makes sense depends on rates and costs.