Private Mortgage Insurance (PMI) is a type of insurance required by lenders when a homebuyer makes a down payment of less than 20% of the property's value. Understanding when you can cancel PMI can save you money on your monthly mortgage payments. This article explains the key requirements and timing for canceling PMI.
When Can You Cancel PMI?
You can typically cancel PMI once you have built up enough equity in your home. The general rule is that PMI can be canceled when your loan balance drops to 80% of the original purchase price or appraised value. However, specific requirements may vary depending on your loan type and lender policies.
Automatic Cancellation
Most lenders are required to automatically cancel PMI once your loan balance reaches 78% of the original value, provided you are current on your payments. This automatic cancellation usually occurs without any action needed from the borrower.
Requesting Cancellation
You can request to cancel PMI earlier if you have paid down your mortgage to 80% of the home's original value and have a good payment history. It is advisable to contact your lender and submit a formal request, which may involve an appraisal to confirm the home's current value.
- Maintain a good payment history
- Ensure your loan-to-value ratio reaches 80%
- Request cancellation in writing
- Be prepared for an appraisal if required