Mortgage insurance can add a meaningful amount to a monthly mortgage payment. But many homeowners are not sure why they are paying it, whether it can be removed, or whether refinancing is the only path forward.
The answer depends on the type of mortgage insurance you have, your loan program, payment history, loan balance, and sometimes your home’s value.
For many homeowners, the first step is simply understanding the difference between private mortgage insurance, commonly called PMI, and FHA mortgage insurance premium, known as MIP.
What Is PMI?
Private mortgage insurance is commonly associated with conventional loans when the borrower puts down less than 20% at purchase or has less than 20% equity at the time of refinancing.
PMI is designed to protect the lender if the borrower does not repay the mortgage. It does not provide the homeowner with insurance coverage.
If you have a conventional mortgage, PMI may appear as a separate line item on your monthly statement. Some homeowners continue paying it longer than expected because they have not reviewed their loan balance, mortgage documents, or cancellation options.
PMI and FHA MIP Are Not the Same
PMI generally applies to many conventional loans. FHA loans use a different form of mortgage insurance called an FHA Mortgage Insurance Premium, or MIP.
This difference matters because the rules for removing PMI and FHA MIP are not the same.
With many conventional loans, homeowners may have a path to request PMI cancellation or may qualify for automatic cancellation when certain conditions are met.
FHA MIP follows FHA program rules. For many FHA loans with case numbers assigned on or after June 3, 2013, borrowers generally cannot request early cancellation simply because their home value has increased or their loan balance has declined. Annual MIP may last 11 years or for the life of the loan, depending on the original loan-to-value and loan term.
That is why it is important to identify the type of mortgage you have before deciding what to do next.
When Can Conventional PMI Be Removed?
For many conventional owner-occupied loans, a homeowner may request PMI cancellation when the principal balance is scheduled to reach 80% of the home’s original value.
“Original value” generally refers to the lower of the purchase price or appraised value at the time of purchase. For a refinance, it generally refers to the appraised value used when the loan was refinanced.
A servicer may require that you:
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Submit the request in writing
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Be current on your mortgage payments
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Have a good payment history
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Confirm there are no junior liens, such as a second mortgage
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Provide evidence that the property value has not declined, if requested
For many eligible conventional loans, PMI is generally required to terminate automatically when the scheduled principal balance reaches 78% of the original value, as long as the loan is current.
Your mortgage documents and servicer can help confirm the date that applies to your loan.
Can a Higher Home Value Help You Remove PMI Earlier?
Possibly, but it depends on your servicer’s guidelines and your specific loan.
If your home value has increased, you may be able to ask your servicer whether an earlier PMI review is available. The servicer may require a new appraisal or other property-value evaluation, a minimum period since closing, a certain amount of equity, and a satisfactory payment history.
Do not assume that a higher estimated value automatically removes PMI. It is important to confirm the requirements before paying for an appraisal or making a decision based on an online home-value estimate.
What if You Have FHA MIP?
If you have an FHA loan, FHA MIP may not be removed in the same way as conventional PMI.
Depending on when the FHA case number was assigned, the original loan-to-value, and the loan term, MIP may be required for 11 years or for the life of the mortgage.
For some homeowners, a refinance into a conventional loan may be worth comparing if the new loan structure, rate, closing costs, payment, available equity, and long-term goals all make sense.
However, refinancing should not be considered automatically just to remove MIP. The complete financial picture matters.
When Might a Refinance Be Worth Comparing?
A refinance may be worth reviewing when removing PMI or FHA MIP is only one part of a larger goal.
For example, it may be helpful to compare options if you want to:
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Remove PMI or FHA MIP, if eligible
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Review whether your current home value has created more equity
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Change your mortgage term
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Consolidate higher-interest debt
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Access equity for an important financial goal
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Review whether a conventional loan may fit your current situation
A refinance replaces your existing first mortgage, so the potential savings from removing mortgage insurance should be reviewed alongside the new rate, loan term, closing costs, and estimated payment.
When It May Be Worth Requesting a Mortgage Review
It may be worth reviewing your mortgage with Prime Choice Funding if:
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You are still paying PMI and believe your home value has increased
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You have made extra principal payments
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You have an FHA loan and want to compare FHA MIP with conventional refinance options
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Your payment, interest rate, or financial goals have changed
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You want to access equity but also want to understand the effect on your current mortgage
You may not need to refinance to remove PMI. In some cases, contacting your current servicer may be the appropriate first step. In others, comparing potential refinance or home equity options may help you make a more informed decision.
Let’s Find the Right Mortgage Solution
Prime Choice Funding can help you review your current mortgage, estimated equity, PMI or FHA MIP, and potential refinance or home equity options through multiple lending partners. We can compare the numbers side by side, with no obligation.
Request a Quote or call (877) 787-7463 to speak with a mortgage professional.
This article is for general informational and educational purposes only and is not financial, legal, tax, or mortgage advice. Mortgage insurance cancellation rules, loan programs, rates, terms, property valuation requirements, documentation, and availability vary by loan type, servicer, lender, property, state, and borrower qualifications. Contact your mortgage servicer to confirm the PMI or FHA MIP rules that apply to your loan. Subject to credit approval. Not all applicants will qualify.
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