Put less than 20% down on a house and a charge that isn’t your mortgage shows up in your payment. It’s called PMI — private mortgage insurance — and on a $400,000 loan it runs $150 to $300 a month. That’s $2,000 to $3,500 a year for a policy that insures the lender’s money, not yours. It isn’t tax-deductible, it builds no equity, and most borrowers are never told when it ends, so it just keeps rolling.
For conventional mortgages, though, the end date is already written into federal law, and for many homeowners it arrives earlier than they think.
What PMI actually is
Your lender wants insurance against your default when you put less than 20% down. If the house’s value falls below what you owe, the lender eats the loss, and PMI makes that safe for them. It’s priced as a percentage of the original loan amount, usually 0.3% to 1.5% a year.
- PMI is not homeowners insurance. It doesn’t cover your house, your belongings, or your liability. It covers the lender.
- The premiums are not tax-deductible. They aren’t mortgage interest, so nothing offsets them. Every dollar is pure outflow.
- On a conventional fixed-rate loan, the premium is normally locked at the amount quoted at closing, not recalculated each year.
FHA loans charge an annual mortgage insurance premium instead of monthly PMI, and since March 2023 HUD requires it to cancel automatically at 78% of the original value. VA loans carry no monthly mortgage insurance at all.
The three ways mortgage insurance ends
- Automatic termination at 78%. Under the Homeowners Protection Act, a servicer must cancel mortgage insurance when your scheduled balance reaches 78% of the property’s original value, based on the original amortization schedule. On a 30-year loan that’s about 22 years in. You should get a written notice a month ahead — a bounce-back letter — and you don’t need to reply.
- Your request, based on your actual balance. Extra principal payments can push your real balance to 78% of the original value years early. Request cancellation on that basis, and the servicer must comply without demanding a new appraisal or a second underwriting.
- Your request, based on today’s value. After 22 years of payments on a 30-year loan, or 11 on a 15-year loan, you can ask to cancel using the home’s current value. You pay for the appraisal; if your balance is 80% or less of it, the insurance comes off.
There’s a fourth path: if you pay the loan off, sell the house, or refinance into a loan that doesn’t require mortgage insurance, the servicer must refund the unearned premium within 20 days of your payoff request. People refinance for a better rate and leave hundreds of dollars of prepaid insurance behind because nobody told them to ask.
Do the math before you call anyone
Your trigger point is a multiplication, not a percentage of your balance: take the original purchase price, multiply by 0.78, and you have the balance at which the insurance is supposed to disappear.
Say you bought a $400,000 house with $320,000 down and $320,000 borrowed. Your threshold is $312,000. At a 0.55% premium, PMI cost about $147 a month, about $880 over six years. Refinance the loan and never ask for the premium back, and you handed the lender $880 you were owed.
On a 30-year loan the balance drops roughly $9,000 a year early on, so a gap of a few thousand dollars between your balance and that 78% line closes fast.
Servicers also run periodic automated reviews of your balance. If a review shows you’ve reached 78% of the original value, they have to cancel and refund any unearned premium you prepaid into escrow. Extra principal payments can pull the actual termination forward by months or years.
How to make your servicer actually do it
Most cancellations happen without a fight — if you do the work. Identify your servicer from your statement, not a website, then send a written request — a phone call leaves no record. Include the account number, balance, note date, and the rule you’re relying on.
- Balance at 78% of original value: ask for cancellation on that basis and note that no new appraisal or underwriting is required.
- In the 22-year or 11-year window: ask to cancel based on current value, and ask whether the servicer can order the appraisal from an approved appraiser.
- Ask for the unearned premium refund in the same letter. It’s a separate entitlement, and it’s easy to forget once the cancellation lands.
- Keep copies: amortization schedule, payment history showing extra principal, closing disclosure.
- No answer in 30 days? Escalate in order: the servicer’s ombudsman, then the CEO’s office, then the CFPB. FHA loans add HUD.
Some servicers route a cancellation through full refinance-style underwriting, which takes weeks and stalls. That’s the exact behavior the CFPB’s 2022 interpretive rule targeted. If it happens, say so plainly in writing and cite the rule.
The moves that get you there faster
- Pay a lump sum toward principal if the gap is small. Dropping $3,000 on a $400,000 loan can save roughly $150 a month in interest for decades, and it crosses the 78% line years early.
- Ask the servicer to recast the loan, re-amortizing the balance over the remaining term at your existing rate, usually for a small fee. If it cuts a year off your PMI timeline, the math works.
- Refinance only if the whole payment works. Dropping PMI is real, but a lower rate is usually bigger. A refi saving $100 a month while costing $6,000 in closing costs is a bad trade — and a refi taken just to remove PMI means paying closing costs again.
What to watch for
- Nobody but the company servicing your loan can cancel PMI. Anyone offering to do it for a fee is running a scam: a “cancellation service agreement,” or a request for your mortgage number and login credentials. Verify by calling the number on your statement.
- When the policy comes off, your payment drops by the PMI amount, and any PMI you prepaid into escrow is usually refunded or credited within about 30 days. Don’t let it quietly roll into next year’s escrow estimate.
- Watch for the annual FHA review request — under the current rules it shouldn’t come. If you still get one, you have a complaint worth making.
Mortgage insurance is one of the largest pure-profit line items in most homeowner budgets, and much of it exists because nobody explained when it expires. Find the number, write the letter, and if your servicer stalls, escalate with the rule attached.
Image: “Hand holds house keys near door lock” by Shixart1985, released under CC BY 2.0 via Wikimedia Commons.
