Question 1

What is PMI and why do I have to pay it?

Accepted Answer

Private Mortgage Insurance (PMI) is insurance that protects the lender if you default on your loan. Lenders require PMI on conventional loans when your down payment is less than 20% of the home value. PMI typically costs 0.5-1.5% of the loan amount annually ($100-300/month on a $300,000 loan), adding significantly to your monthly payment until you reach 20% equity.

Question 2

When can I request PMI removal?

Accepted Answer

You can request PMI removal when you reach 20% equity in your home based on the original property value. You must have a good payment history (no late payments in the last year, no 60+ day late payments in 2 years), and may need an appraisal to verify the home value. The lender is not required to grant your request until you reach 22% equity automatically.

Question 3

What is the difference between 20% and 22% equity for PMI?

Accepted Answer

At 20% equity (80% loan-to-value), you can REQUEST PMI removal, but the lender can require an appraisal and good payment history. At 22% equity (78% LTV), the lender MUST automatically terminate PMI as long as you are current on payments. This automatic termination is required by law and does not need your request or an appraisal.

Question 4

How can I remove PMI faster?

Accepted Answer

You can remove PMI faster by: (1) Making extra principal payments to reach 20% equity sooner, (2) Requesting a reappraisal if your home has significantly appreciated (may require current LTV of 75-80%), (3) Making home improvements that increase property value, or (4) Making a large lump-sum payment to jump to 20% equity immediately. Always specify extra payments are for principal only.

Question 5

How much does PMI cost and how much can I save?

Accepted Answer

PMI typically costs 0.5-1.5% of the loan amount annually. On a $300,000 loan, that is $1,500-$4,500/year or $125-$375/month. Once removed, you save that amount every month for the remainder of your loan. If you remove PMI after 5 years on a 30-year loan, you save $31,250-$93,750 over the remaining 25 years at $125-375/month.

Question 6

Can I remove PMI if my home value increased?

Accepted Answer

Yes, if your home has appreciated significantly, you may be able to remove PMI early through a reappraisal. Most lenders require you to have owned the home at least 2 years and reach 75-80% LTV based on the new appraised value. You pay for the appraisal ($300-600), and the lender decides whether to approve removal. This works best in rapidly appreciating markets.

Question 7

What happens to PMI if I refinance?

Accepted Answer

When you refinance, your existing PMI ends and is replaced based on your new loan terms. If you have 20%+ equity when refinancing, you can avoid PMI on the new loan. If you still have less than 20% equity, you will need PMI on the refinanced loan. Refinancing to remove PMI only makes sense if you are close to 20% equity or if rates have dropped significantly.

Question 8

Does FHA mortgage insurance work the same as PMI?

Accepted Answer

No, FHA loans have Mortgage Insurance Premiums (MIP), not PMI, and the rules differ. For FHA loans with less than 10% down, MIP lasts for the entire loan term and cannot be removed without refinancing to a conventional loan. FHA loans with 10%+ down can have MIP removed after 11 years. Conventional PMI is generally more favorable as it can be removed at 20-22% equity.

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