Can I refinance to get rid of the PMI insurance on my mortgage?

Reader question: “I bought a home about seven years ago with a 90% LTV mortgage loan (down payment of 10%). I had to get PMI insurance on the loan because it accounted for more than 80% of the home’s value. But home prices have risen a lot in my area, over the last three years or so. Can I refinance to get rid of PMI? Is there some other way to get rid of it?”

Yes, you can refinance to remove the PMI policy you have on your current mortgage loan. But only if your equity has reached a certain level. The typical “trigger” for mortgage insurance is 20%. That means you would need to have at least 20% equity in your home, to successfully refinance and get rid of the PMI.

Homeowners Protection Act: Automatic Cancellation of PMI

You might not need to refinance. If you’re using a conventional (non FHA) home loan, and you currently have 20% equity or more, you should be able to have the private mortgage insurance policy cancelled. In that scenario, PMI would no longer be needed, since the loan-to-value is below 80%. So you should start by talking to your lender, loan servicer and/or the PMI company that is insuring the mortgage.

Additionally, federal laws require insurers to cancel these policies when a certain LTV threshold has been reached. The Homeowners Protection Act was signed into law on July 29, 1999. It is also referred to as the “PMI Cancellation Act.” It requires automatic termination of home loan insurance policies under certain circumstances, defined below.

According to the Homeowners Protection Act:

…servicers must automatically terminate PMI for residential mortgage transactions on the date that: (A) the principal balance of the mortgage is first scheduled to reach 78% of the original value … if the borrower is current; or (B) if the borrower is not current on that date, on the first day of the first month following the date that the borrower becomes current.

So it’s imperative that you talk to your loan servicer, and also that you find out how much equity you have in your home.

Read: How to calculate loan-to-value for PMI purposes

How Much Equity Do You Have?

From the sound of it, you started off with 10% equity in your home (due to your down payment) and it has grown since then. If property values in your area have in fact risen consistently since the original purchase, as you’ve said, then you should have more than 10% equity at present.

You might even be sitting at 20% or higher, which means you should be able to refinance and get rid of the PMI insurance costs — or just have the insurer cancel the policy outright.

If you currently have 22% equity or more, and you purchased the home after the July 1999 effective date of the Homeowners Protection Act, the loan servicer would have to automatically cancel the coverage.

Have you checked? Do you have any idea how much equity you have right now? If not, you have some research to do. You could have the home appraised to find out. Or you could just apply for a refi loan, and let the lender have it appraised (that will be one of the first things they do, in addition to checking your credit and income situation).

Refinancing to Get Rid of PMI, While Getting a Lower Rate

You might even be able to kill two birds with one stone, by getting rid of PMI while also securing a lower mortgage rate on the new loan. Since you purchased seven years ago, there is a good chance your interest rate is higher than the low rates that are available right now. That would be an ideal scenario. You would reduce your monthly costs as well as the total amount of interest paid over time. Your interest costs would drop if you were able to land a lower rate, and your PMI expense would disappear if your equity was high enough.

So yes, you can refinance to get rid of the PMI policy you have right now, if you have enough equity in your home. The new loan would not require mortgage insurance. Better still, you may be able to get a lower interest rate and reduce your monthly payments — not to mention the total amount of interest paid over time. Bonus!

But you might not have to refinance. Depending on your current equity situation, your loan servicer might be required to cancel the policy.

Brandon Cornett

Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author