What Is PMI and Why Do You Pay It?
Private Mortgage Insurance (PMI) is a monthly fee required by lenders when you put less than 20% down on a conventional mortgage. It protects the lender, not you, in case you default on the loan. PMI typically costs between 0.5% and 1.5% of your loan amount per year, which translates to $100–$400/month on a $250,000 loan.
The good news: PMI is not permanent. Once you've built enough equity in your home, you have the right to remove it, and doing so can meaningfully reduce your monthly payment.
The 4 Ways to Remove PMI in Michigan
1. Request Cancellation at 80% LTV
Under the federal Homeowners Protection Act (HPA), you have the right to request PMI cancellation once your loan balance reaches 80% of your home's original purchase price. You must be current on your payments and have a good payment history. Your lender may require a new appraisal to confirm the property value hasn't declined.
How to do it: Contact your loan servicer in writing and request PMI cancellation. Provide documentation of your current loan balance and, if required, a new appraisal.
2. Automatic Termination at 78% LTV
Even if you never request cancellation, federal law requires your lender to automatically terminate PMI once your loan balance reaches 78% of the original purchase price, as long as you're current on your payments. This happens based on your original amortization schedule, regardless of whether your home has appreciated.
3. Get a New Appraisal (Home Appreciation)
If your home has increased in value since you purchased it, you may have already reached 80% LTV based on the current value, even if you haven't paid down much principal. In this case, you can request a new appraisal and ask your lender to remove PMI based on the updated value.
Example: You bought your home for $200,000 with 10% down ($20,000). Your loan balance is $175,000. Your home is now worth $240,000. Your LTV is now 72.9% ($175,000 ÷ $240,000), well below the 80% threshold. A new appraisal would support PMI removal.
Most lenders require you to have had the loan for at least 12–24 months before requesting appraisal-based PMI removal.
4. Refinance Into a New Loan
Refinancing is often the most powerful option, especially if your home has appreciated significantly or rates have dropped. When you refinance, you're getting an entirely new loan, and if your new LTV is below 80% based on the current appraised value, the new loan won't have PMI at all.
This approach has the added benefit of potentially lowering your interest rate at the same time, compounding your monthly savings.
PMI Removal Timeline: What to Expect
| Method | When Available | Requires Appraisal? | Timeline |
|---|---|---|---|
| Request cancellation | At 80% LTV (original value) | Sometimes | 30–60 days |
| Automatic termination | At 78% LTV (original value) | No | Per amortization schedule |
| New appraisal (appreciation) | After 12–24 months | Yes | 30–60 days |
| Refinance | Anytime (if LTV < 80%) | Yes | 21–30 days to close |
FHA Mortgage Insurance Is Different
It's important to note that FHA loans have their own mortgage insurance (MIP), which works differently from conventional PMI. For FHA loans originated after June 2013 with less than 10% down, MIP is required for the entire life of the loan, it does not automatically cancel when you reach 80% LTV.
The only way to eliminate MIP on an FHA loan is to refinance into a conventional loan once you have at least 20% equity. This is one of the most common reasons Michigan homeowners refinance from FHA to conventional.
How Much Can You Save by Removing PMI?
The savings from removing PMI depend on your loan balance and PMI rate. Here's a quick reference:
| Loan Balance | PMI Rate (0.8%) | Monthly PMI | Annual Savings |
|---|---|---|---|
| $200,000 | 0.8% | $133/mo | $1,600/yr |
| $250,000 | 0.8% | $167/mo | $2,000/yr |
| $300,000 | 0.8% | $200/mo | $2,400/yr |
| $350,000 | 0.8% | $233/mo | $2,800/yr |
Frequently Asked Questions
Check your most recent mortgage statement for your current loan balance, then divide it by your original purchase price. If the result is 0.80 or less (80% LTV), you can request PMI cancellation. If your home has appreciated, divide your current balance by the current estimated value, if that's below 80%, a new appraisal may support removal.
Yes. For conventional loans, you can request PMI cancellation once you reach 80% LTV based on the original purchase price, or request a new appraisal if your home has appreciated. Refinancing is not required, but it may be the fastest path if your home has appreciated significantly.
Yes. Extra principal payments accelerate your loan paydown, helping you reach the 80% LTV threshold sooner. Even an extra $100–$200/month can shave years off your PMI timeline. Just make sure to designate extra payments as "principal only" when submitting them.
It depends on the numbers. If refinancing also lowers your rate, the combined savings often justify the closing costs quickly. If rates are higher than your current rate, the math may not work. In that case, requesting cancellation or waiting for automatic termination is likely better. We'll run a free analysis for your specific situation.
Find Out If You Can Remove PMI Today
Our team will review your current loan, estimate your home's current value, and tell you exactly which PMI removal path makes the most sense for your situation, free with no obligation.
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