If you bought a home with less than 20% down on a conventional loan, you are almost certainly paying private mortgage insurance (PMI). It is one of the most misunderstood line items in a mortgage payment: it does nothing to protect you, offers no equity, and simply insures the lender against the risk that you default. On a typical loan, PMI runs 0.5–1.5% of the loan balance per year — often $100–$300 a month, or $1,500–$3,500 annually. The good news is that PMI is temporary, and there are several ways to get rid of it faster than you might think.
What PMI Is and Why You Pay It
Lenders view a down payment below 20% as riskier, because a borrower with little equity is more likely to walk away if the home's value falls. PMI offsets that risk. It is required on conventional loans until you build enough equity, and it is calculated as a percentage of your loan amount based on your credit score and loan-to-value (LTV) ratio.
It is important to distinguish conventional PMI from FHA mortgage insurance premiums (MIP). Conventional PMI can be removed once you reach the equity thresholds described below. FHA MIP, by contrast, typically lasts the life of the loan if you put down less than 10% — which means the only way to eliminate it is usually to refinance into a conventional loan. If you are on an FHA loan and have built equity, refinancing is often the single most effective move.
1. Wait for Automatic Termination at 78% LTV
Federal law — the Homeowners Protection Act — requires your lender to automatically cancel PMI once your loan balance reaches 78% of the home's original value, provided you are current on payments. This happens on its own, based on your amortization schedule, with no action required from you. The catch is that it can take years to reach on a low-down-payment loan, because early payments are mostly interest. Automatic termination is the safety net, not the fastest route.
2. Request Cancellation at 80% LTV
You do not have to wait for automatic termination. The same law lets you formally request PMI cancellation once your balance reaches 80% of the original value. This is a full two percentage points earlier than automatic termination, and on a large loan that gap can represent many months of premiums.
To qualify, you generally must submit a written request, have a good payment history with no recent late payments, and confirm there are no junior liens (such as a second mortgage) on the property. Your servicer may also require a broker price opinion or appraisal to confirm the value has not declined. Mark the date you expect to hit 80% on your amortization schedule and submit your request as soon as you arrive.
3. Make Extra Principal Payments
Because both cancellation thresholds are based on your loan balance, paying down principal faster gets you there sooner. Even modest extra payments compound: an additional $200 per month applied directly to principal can pull your PMI cancellation date forward by a year or more, saving thousands in premiums along the way. If you receive a bonus, tax refund, or windfall, applying it to principal is one of the highest-guaranteed-return uses of that money, because every dollar of PMI avoided is a dollar saved with certainty.
4. Get a New Appraisal After Your Home Appreciates
The 80% and 78% thresholds are based on your home's original value — but many servicers will also cancel PMI based on current market value if your home has appreciated. If nearby homes have risen in price or you have made significant improvements, a new appraisal may show that you already have 20% equity even though your loan balance alone has not reached 80% of the purchase price.
Servicers typically have specific rules here: many require you to have held the loan for at least two years and to reach 75% LTV (rather than 80%) on the new value if the loan is two to five years old. An appraisal costs a few hundred dollars, so run the math first — if you are close to the threshold on current value, it can pay for itself many times over.
Not sure how close you are to 20% equity? Use our Mortgage Calculator to see your amortization schedule and pinpoint exactly when your balance crosses the PMI cancellation thresholds.
5. Refinance Into a New Loan
If your home has appreciated substantially or interest rates have fallen, refinancing can eliminate PMI and lower your rate at the same time. When you refinance, the new loan is based on the current appraised value; if you now have 20% or more equity, the new loan carries no PMI at all. This is the primary path off FHA mortgage insurance, which usually cannot be cancelled any other way.
Refinancing is not free — expect closing costs of 2–5% of the loan — so weigh the combined savings from removing PMI and any rate reduction against those costs. Calculate your break-even point: if you will recoup the closing costs within a couple of years through lower payments, and you plan to stay longer than that, refinancing is often worthwhile.
6. Take On Home Improvements That Add Value
Because appreciation-based cancellation depends on your home's current value, strategic improvements can accelerate your path to 20% equity. This works best when combined with option four: complete value-adding projects, then order an appraisal. Focus on improvements with strong returns — kitchen and bathroom refreshes, added square footage, or curb-appeal upgrades — rather than highly personal renovations that appraisers may not fully credit. Just be sure the appraisal gain will clear your servicer's threshold before spending the money.
The Bottom Line
PMI is a temporary cost, not a permanent one, and being proactive can save you thousands. Track your loan balance against the 80% and 78% thresholds, request cancellation the moment you qualify, and consider extra principal payments or an appreciation-based appraisal to get there faster. If you are on an FHA loan or rates have dropped, refinancing may eliminate mortgage insurance entirely. The key is to treat PMI removal as an active goal rather than waiting passively for it to disappear on its own.