You can get rid of PMI when you reach 20% equity in your home. You’ve reached 20% equity when the difference between your loan amount and what you’ve paid is 80% of the loan. For example: If your loan is for $200,000, you will reach 20% equity when you’ve paid $40,000 toward your loan’s principal amount. There are a couple of ways to reach that equity and get rid of PMI.
How do you get rid of borrower-paid PMI?
What about lender-paid PMI (LPMI) or MIP (Mortgage Insurance Premiums)?
With lender-paid private mortgage insurance (LPMI) your lender pays the mortgage insurance upfront at closing. It’s repaid through the mortgage payment at an agreed upon higher interest rate. FHA has mortgage insurance premiums you pay throughout the entire loan term. FHA will shorten that period to 11 years if you put down 10% or more.
The only way to get rid of LPMI or MIP with less than 10% down is to refinance. You must have 20% before you can refinance.
PMI and Multi-Unit Property
Fannie Mae Loans: You can request cancellation of PMI after you reach 30% equity. If you don’t request it, they will cancel it mid-way through the loan term.
Freddie Mac: You can request cancellation of PMI after 35% equity is reached. They will not automatically cancel mortgage insurance. You must request it.
PMI makes it possible for you to get a loan without putting down 20% of the purchase price. It increases your monthly payment and doesn’t help you pay down your loan. When you’re ready to get rid of PMI, consider the options shared above. That savings each month can really add up.