If you bought a home in the last few years with less than 20 percent down, there's a decent chance you're paying private mortgage insurance every month without thinking much about it.
That extra line item on your statement can run $100 to $200 or more, and plenty of homeowners keep paying it long after they're allowed to stop.
PMI isn't a scam, but it's also not permanent.
Once you build enough equity, you can ask your lender to cancel it, and there are specific rules about when that's allowed.
The magic number most people know is 20 percent equity.
Once you've paid your balance down to 80 percent of the home's original value, you can request removal.
But here's the catch: most servicers want a written request, and some want proof the home hasn't dropped in value.
There's also a second rule many homeowners miss.
Under federal law, PMI generally must be canceled automatically once you reach 22 percent equity based on the original purchase price and your normal payment schedule.
That happens whether you ask or not, but only if your payments are current.
Where people get tripped up is the difference between "original value" and "current value." If your home has appreciated a lot, you might be able to drop PMI years earlier than your amortization schedule suggests.
That usually means paying for an appraisal, but the math can work in your favor fast.
A $500 appraisal that kills a $150 monthly PMI bill pays for itself in about three months.
Call your servicer, not your original lender, since loans get sold all the time.
Ask for their exact PMI removal requirements in writing.
Get current on any missed payments, because most servicers won't start the review otherwise.
If you're near 20 percent based on your original price, request cancellation with your payment history.
If you've gained equity from rising home values, ask about a broker's price opinion or appraisal.
Some lenders accept a BPO, which is cheaper than a full appraisal.
FHA loans work differently, and if you put down less than 10 percent on an FHA loan, that mortgage insurance usually lasts for the life of the loan unless you refinance.
Condo owners sometimes hit extra hurdles.
And if you've had late payments in the past year or two, expect a delay.
The fastest move for many people right now is a quick check of their loan-to-value ratio.
Pull your latest statement, find the remaining balance, and compare it to a realistic estimate of your home's value.
If that number is at or below 80 percent, it's worth one phone call.
Worst case, you learn you're not eligible yet and you get the exact date you will be. **Our take:** PMI is one of the few recurring costs on a mortgage that you can actually delete, and too many homeowners let it ride for years out of habit.
A ten-minute call and possibly a few hundred dollars for an appraisal can save thousands before you sell or refinance.
Final Thoughts
Check your equity this month, because every payment you make while eligible is money you don't get back.