The two dates, and the gap between them
If you put less than 20% down on a conventional mortgage, you are almost certainly paying private mortgage insurance (PMI). It is worth being precise about what that is: PMI is an insurance policy that pays your lender if you default. You pay the premium. You receive nothing. It exists so that lenders will write loans above 80% loan-to-value at all — a real service to buyers who would otherwise be stuck saving for years longer — but the moment it stops being necessary, it stops being worth a cent to you.
The rules for when it stops are set by the federal Homeowners Protection Act of 1998, and they are unusually clear for consumer finance law. What is not clear to most borrowers is that the Act contains two different dates, and they are not the same date.
The first date is the one you have to act on. Once your principal balance is scheduled to fall to 80% of the original value of your home, you may request that PMI be cancelled. The Consumer Financial Protection Bureau's own guidance is explicit that this is a request you make, not something that happens to you: you must ask in writing.
The second date is automatic. When your scheduled balance reaches 78% of the original value, the servicer must terminate the insurance whether you ask or not, provided you are current on your payments.
Two percentage points of a home's value does not sound like much. In months, they are further apart than people expect. Take a $380,000 loan on a $400,000 home at 6.5% over thirty years — a 95% loan-to-value purchase, an ordinary enough starting point. The 80% threshold is a balance of $320,000, reached in month 124. The 78% threshold is $312,000, reached in month 135. That is eleven months in which you have the right to stop paying and the servicer has no obligation to remind you.
What those eleven months cost. At an annual premium of 0.58% of the original loan amount — a common band for a borrower with decent credit — PMI on that loan runs about $184 a month. Eleven months of it is roughly $2,020 for doing nothing but not knowing.
What "original value" actually means
This is the definition that trips people up. "Original value" means the lower of the contract sales price or the appraised value at the time you bought the home. If you have since refinanced, it resets to the appraised value at the time of that refinance.
It does not mean what the house is worth now. Years of appreciation do not move your 80% or 78% dates, because those dates are calculated against a number fixed at closing. The amortization schedule you were handed on day one already contains both of them; nothing since has changed them.
The conditions attached to the request
Reaching 80% earns you the right to ask. It does not guarantee a yes. The Act attaches conditions, and a servicer is entitled to enforce every one:
- The request must be in writing. A phone call is not a request. Send it in a form you can prove you sent.
- You must have a good payment history and be current. A recent late payment is usually enough to defer the whole thing.
- You must certify there are no junior liens. A second mortgage or a home equity line attached to the property will stop the cancellation, even if its balance is small.
- You may have to show the value has not fallen. The servicer can require evidence that the property is still worth at least its original value, and in practice that often means an appraisal you pay for.
None of those conditions is unreasonable. All of them are easier to satisfy if you know about them before you write the letter rather than after the refusal.
The third date, which almost nobody mentions
There is one more protection in the Act. If neither threshold has been triggered — and it happens, most often on loans a servicer classifies as higher risk — PMI must end anyway the month after you reach the midpoint of your loan's amortization schedule. On a thirty-year loan that is after fifteen years, no matter what the balance is and no matter what the house is worth.
If you are more than fifteen years into a thirty-year loan and still seeing a mortgage insurance line on your statement, that is worth a query today.
Why extra payments do not do what you would expect
Here is the counter-intuitive part. Both statutory thresholds are measured against the scheduled balance — the balance on the amortization schedule — not the balance you have actually got down to. Paying extra each month does not pull the 78% automatic termination date forward at all. The schedule is the schedule.
What extra payments can do is get you to 80% of the home's current value sooner, which is a different route with different mechanics: it needs an appraisal, and it needs the servicer to agree rather than simply to comply. Fannie Mae and Freddie Mac both publish criteria for this, generally requiring the loan to have seasoned for a period and the appraisal to come from a list the servicer controls. It is often granted. It is not a right. So there are really three paths off PMI: the 80%-of-original request, which is a right; the 78%-of-original termination, which is automatic; and the 80%-of-current appraisal, which is a negotiation. The extra payment calculator shows what extra payments do to your actual balance and to total interest, which is usually the better reason to make them.
One more option: ask for a new appraisal
If your home's value has risen sharply and you are still paying PMI, call your lender or servicer and ask whether they will accept a new appraisal to remove PMI early based on current value. This is not guaranteed — every lender handles it differently, and it comes down to the servicer's own policy and the appraisal — but it costs only a phone call to find out.
FHA loans are not covered by any of this
Everything above concerns private mortgage insurance on a conventional loan. FHA loans carry a mortgage insurance premium instead, under a completely separate programme. On most FHA loans written since 2013, the annual premium runs for the full life of the loan unless the original loan-to-value was 90% or below. Reaching 78% does nothing. The usual way off an FHA premium is to refinance into a conventional loan once you have the equity to do it without PMI — a decision that turns on the rate you can get, not on the insurance alone. The refinance break-even calculator is the place to test that rather than assuming it.
What to do this week
Find your original value — the purchase price or the appraisal at closing, whichever was lower. Multiply it by 0.80 and by 0.78. Then look at your amortization schedule and find the months where your scheduled balance crosses each figure. If the first one has already passed, write to your servicer today and ask for their written cancellation requirements at the same time, so you are not surprised by a junior lien certification or an appraisal fee.
If neither has passed, put the earlier date in your calendar with a reminder six weeks before it. That is the whole trick. There is no clever manoeuvre here and nothing to buy — just a date, a letter, and a servicer who is not going to raise the subject first.