Private mortgage insurance, or PMI, is a cost many borrowers encounter when buying a home with a smaller down payment. It can help make a conventional loan possible, but it protects the lender, not the homeowner. The important distinction is that paying PMI does not mean it must stay on the loan forever. Federal rules give many borrowers a way to request cancellation, with different rules for some loans and circumstances.
What private mortgage insurance does
On many conventional loans, a down payment below 20 percent of the home’s sales price or appraised value triggers a requirement for PMI. The coverage reduces the lender’s risk. If a foreclosure sale does not raise enough to repay the outstanding loan balance, mortgage insurance can cover the shortfall owed to the lender. The borrower pays for that protection, but it does not cover the borrower’s home or belongings.
That is different from homeowners insurance, which covers specified damage to the home and, depending on the policy, its contents. The Consumer Financial Protection Bureau explains how mortgage insurance works, while Freddie Mac distinguishes it from homeowners insurance in its overview of PMI. PMI may make a loan available with less money down, but it adds to the cost of borrowing.
How the premium is charged
PMI is often included in the monthly mortgage payment. Depending on the loan, mortgage insurance may instead be paid at closing or through a combination of an upfront charge and monthly payments. The closing documents and the loan’s ongoing billing statements can show which arrangement applies.
Freddie Mac has published an approximate range of $30 to $70 a month for each $100,000 borrowed. That is a general estimate, not a quote for a particular borrower. Premiums can vary with factors such as loan type, loan size, down payment, and credit profile. The source also does not provide enough detail to treat that range as a current price for every loan. A borrower reviewing costs can compare the total loan expense, including PMI, rather than judging affordability from the monthly premium alone.
Some loan options do not require PMI, but that does not automatically make them less expensive overall. Other costs or terms may differ. Freddie Mac discusses this tradeoff in its PMI overview. The comparison depends on the specific loan terms, so the monthly insurance charge is only one part of the picture.
The 80 percent request point and automatic termination
For many covered loans, the Homeowners Protection Act gives a borrower the right to ask the servicer to cancel PMI when the principal balance is scheduled to reach 80 percent of the home’s original value. Principal is the amount borrowed that remains unpaid, not the total of future interest and other charges. The 80 percent figure is a point at which a borrower may request cancellation, not a promise that every loan’s insurance ends automatically that day.
“Original value” generally means the lower of the home’s purchase price and its appraised value at the time of purchase. If the loan was refinanced, the relevant original value is generally the appraised value at refinancing. That means the balance calculation can change after a refinance, even if the home itself has not changed.
A borrower may reach the 80 percent point on the original schedule or sooner by making additional principal payments. The CFPB says the first eligible request date should be shown on the PMI disclosure form provided at closing. The Act also provides for automatic termination on a scheduled date. The disclosure and the servicer’s records are useful starting points for confirming which date applies. The CFPB summarizes the rules for requesting PMI cancellation.
Which rules apply to the loan?
The federal protections described by the CFPB apply to many single-family, principal-residence mortgages that closed on or after July 29, 1999. A principal residence is the home the borrower lives in as their main home. The Homeowners Protection Act took effect on that date and sets cancellation, termination, and disclosure requirements. But “mortgage insurance” is not one uniform set of rules for every loan.
If the loan is conventional and covered by the Act, ask the servicer to explain the cancellation date and the balance calculation. If the loan is insured through FHA or VA, different requirements may apply. USDA loans also have their own mortgage-insurance arrangements. The CFPB advises borrowers with FHA or VA loans to contact their servicer about the rules for their loan. A lender-paid insurance arrangement can also follow different requirements. The loan documents and servicer can help identify the type of coverage in place.
Some servicers or loan programs may allow cancellation under additional standards. Those standards can involve the property’s current value or payment history, and details vary. Do not assume that a rise in home value alone changes the original-value calculation under the federal 80 percent request rule. Ask the servicer which rule it is applying and what documentation it requires.
What to ask the servicer, and what to do if PMI continues
A useful first step is to request the information in writing. Ask for the earliest date you may request cancellation, the original value the servicer is using, the current principal balance, and whether the loan was refinanced. Also ask whether the loan is covered by the Homeowners Protection Act, whether the insurance is borrower-paid or lender-paid, and whether the servicer offers other cancellation standards.
Keep the response with the closing disclosure, PMI disclosure form, and account statements. These records make it easier to compare the servicer’s explanation with the loan’s payment history. Fannie Mae’s servicing guide describes termination procedures for conventional loans, including borrower requests and automatic termination, but a loan’s specific rules depend on its terms and servicing arrangements.
If PMI remains on the bill after the servicer’s records show that cancellation or termination should have occurred, ask the servicer to review the account and explain its decision. The CFPB has said consumers should not be billed for unnecessary PMI. The federal agency also has information about its guidance on cancellation and termination. Borrowers who cannot resolve a concern with the servicer can review the CFPB’s official resources or consult a qualified professional about their own situation. These steps are educational information, not individual legal, financial, or tax advice.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
