How to Get Rid of PMI?

When you review your monthly mortgage payment, you'll notice it's made up of several components. A portion goes toward paying down your loan principal, while another covers interest. Many homeowners also have an escrow account that pays for property taxes, homeowners insurance, and, in some cases, mortgage insurance.

Depending on your down payment and loan type, you may see an additional charge called Private Mortgage Insurance (PMI). PMI can add a noticeable amount to your monthly housing expense, but the good news is that it doesn't necessarily have to last for the life of your loan.

Many homeowners throughout Tucson and Southern Arizona may be able to eliminate PMI sooner than they realize, potentially reducing their monthly mortgage payment and improving their overall financial flexibility.

What Is PMI (Private Mortgage Insurance)?

Private Mortgage Insurance (PMI) is a type of insurance that protects the lender if a borrower defaults on a mortgage loan. While the lender receives the benefit of the coverage, the borrower pays the monthly premium.

PMI is most commonly required when a homebuyer purchases a property with less than a 20% down payment using a conventional mortgage.

Why Do Lenders Require PMI?

Mortgage lenders evaluate risk whenever they approve a home loan. Several factors influence that risk, including:

• Credit score
• Payment history
• Debt-to-income ratio
• Loan amount
• Down payment amount
• Loan-to-value ratio (LTV)

One of the most important factors is how much of the home's value is being financed.

Example: 20% Down Payment

Suppose you purchase a $300,000 home and make a $60,000 down payment. You would finance the remaining $240,000, which equals 80% of the home's value.

Because you already have substantial equity in the property, the lender assumes less risk.

Example: 10% Down Payment

Now assume you purchase the same $300,000 home with a $30,000 down payment. You would finance 90% of the home's value.

Since the lender is financing a larger percentage of the purchase price, the risk increases. PMI helps offset that additional risk.

For most conventional mortgages, PMI is required whenever the loan exceeds 80% of the home's appraised value.

Does PMI Differ by Loan Type?

Yes. Mortgage insurance requirements vary depending on the loan program.

Conventional Loan PMI

For conventional loans, PMI is generally required when the loan-to-value ratio exceeds 80%.

The good news is that PMI is not permanent.

• PMI automatically terminates when your loan balance reaches 78% of the home's original value, provided you're current on your payments.
• You may request PMI removal once your loan reaches 80% LTV.
• Some homeowners may qualify for earlier PMI removal if their home's value has increased significantly.

Learn more about available Conventional Loan options.

FHA Loan Mortgage Insurance Premium (MIP)

FHA loans require Mortgage Insurance Premiums (MIP), which function similarly to PMI but follow different rules.

• If you put less than 10% down, MIP typically remains for the life of the loan.
• If you put 10% or more down, MIP may be removed after 11 years.

Because of these rules, many homeowners eventually refinance into a conventional mortgage once they have accumulated sufficient equity.

Learn more about FHA Loans.

VA Loan Mortgage Insurance

One of the biggest advantages of VA loans is that eligible borrowers do not pay monthly PMI.

Qualified veterans, active-duty service members, and certain surviving spouses may be able to purchase a home with no down payment and no monthly mortgage insurance requirement.

Learn more about VA Loans.

USDA Loan Mortgage Insurance

USDA loans offer several attractive benefits, including:

• No down payment requirement for eligible borrowers
• Competitive interest rates
• Flexible financing options for qualifying rural properties

While USDA loans do not require traditional PMI, they do include an annual guarantee fee that is paid monthly.

To qualify, borrowers generally must:

• Meet income eligibility requirements
• Meet minimum credit standards
• Purchase a property located within a USDA-eligible area

Learn more about USDA Loans.

How Is PMI Calculated?

Several factors influence PMI costs, including:

• Credit score
• Down payment amount
• Loan-to-value ratio
• Debt-to-income ratio
• Property value
• Loan amount

Generally, the closer your down payment is to 20%, the lower your PMI costs may be.

PMI often ranges from approximately 0.1% to 2% of the loan amount annually, depending on borrower qualifications and loan characteristics.

Example PMI Costs

If you borrow $270,000:

• Low-end PMI: approximately $270 annually ($22/month)
• High-end PMI: approximately $5,400 annually ($450/month)

Many borrowers fall somewhere in between, often paying between $100 and $300 per month.

If you're currently comparing loan options, you can estimate potential mortgage payments using The Polder Group's Mortgage Calculators.

Do You Have to Refinance to Remove PMI?

The answer depends on your loan type.

Conventional Loans

Most conventional borrowers do not need to refinance to remove PMI.

Options may include:

• Waiting for automatic cancellation at 78% LTV
• Requesting removal at 80% LTV
• Making additional principal payments
• Obtaining a new appraisal if home values have increased

FHA Loans

In many cases, refinancing is the most practical way to eliminate FHA mortgage insurance before the end of the loan term.

Homeowners who have accumulated enough equity may qualify to refinance into a conventional loan and potentially remove mortgage insurance.

Learn more about Mortgage Refinance Options.

5 Ways to Eliminate PMI

1. Wait for Automatic Cancellation

For conventional loans, PMI is automatically removed when your loan balance reaches 78% of the home's original value.

2. Request PMI Removal at 80% LTV

Many lenders allow PMI removal once you reach 80% loan-to-value, but you typically must request cancellation.

3. Make Additional Principal Payments

Paying extra toward principal can help reduce your loan balance faster and accelerate PMI removal.

4. Obtain a New Home Appraisal

If property values in your area have increased substantially, a new appraisal may demonstrate that you already have 20% equity.

This strategy has become increasingly relevant for homeowners throughout Tucson and Southern Arizona who have benefited from strong home appreciation over recent years.

5. Refinance Your Mortgage

Refinancing may allow you to eliminate PMI if your current equity position exceeds 20%.

A refinance can also provide an opportunity to review your interest rate, loan term, and long-term financial goals.

Should You Refinance to Remove PMI?

For many Arizona homeowners, refinancing can be an effective strategy for eliminating mortgage insurance and potentially lowering monthly housing costs.

However, refinancing isn't the right solution for everyone. Factors such as current interest rates, closing costs, loan balance, and future plans should all be considered before making a decision.

Working with an experienced mortgage professional can help you evaluate whether refinancing, PMI removal, or another mortgage strategy aligns with your goals.

Work with The Polder Group at CrossCountry Mortgage

If you're looking to remove PMI, refinance your mortgage, or explore your home financing options, The Polder Group at CrossCountry Mortgage is here to help.

Our team serves homebuyers and homeowners throughout Tucson and Southern Arizona and can help you evaluate strategies based on your unique financial situation.

Whether you're interested in lowering your monthly payment, accessing home equity, purchasing your next home, or exploring available loan programs, we're ready to answer your questions and guide you through the process.

Visit our Contact Page to speak with a member of our team and discuss your mortgage goals today.

Frequently Asked Questions

Can PMI be removed before reaching 20% equity?

In some cases, yes. If your home's value has increased significantly, your lender may allow PMI removal based on a new appraisal and updated equity calculation.

How long does PMI stay on a conventional loan?

PMI remains until you reach the required loan-to-value threshold. It automatically terminates at 78% LTV and may be removed earlier upon request at 80% LTV.

Does refinancing always remove PMI?

Not necessarily. You must still meet lender qualification requirements and have sufficient equity. Depending on eligibility, refinancing may allow you to eliminate PMI.

Is PMI tax deductible?

Tax laws change periodically. Consult a qualified tax professional regarding your specific tax situation and eligibility.

This article is for educational purposes only and does not constitute financial or mortgage advice. Loan programs, rates, and guidelines may change at any time. All loans are subject to credit approval and underwriting. For guidance tailored to your situation, consult a licensed mortgage professional.