PMI costs 0.3-1.5% of your loan balance per year. On a $350,000 loan that is $1,050-$5,250/year you can legally get rid of once your LTV drops below 80%. Most homeowners leave thousands on the table because they do not know when to request removal.
Worked example: Bought $400,000 home with 10% down ($40,000) = $360,000 loan at 7.0%. PMI is 0.6%/year = $180/mo. With 3% annual appreciation and standard amortization, the combined effect drops LTV to 80% around month 54 (year 4.5). Request removal then; save $180/mo every month after.
Two ways to drop PMI
- Automatic termination — by federal law (Homeowners Protection Act), lenders must drop PMI when your loan reaches 78% of original home value based on amortization schedule. No request required. This assumes no appreciation.
- Borrower-requested cancellation — at 80% LTV based on current home value (appreciation counts). You have to request it and pay for a new appraisal ($400-$600).
When to request and when to wait
- If appreciation is strong (5%+ in your market), request early — get the appraisal, drop PMI, save the $180/mo.
- If appreciation is weak, wait for automatic termination at 78% of original value.
- If you did a cash-out or major renovation that boosted value, request immediately.
FHA MIP is different — you cannot drop it
FHA MIP on loans originated after June 2013 is permanent for the life of the loan when you put less than 10% down. You can only remove it by refinancing to conventional. Model this with our refinance calculator — often refinancing just to drop MIP is worth it even at a slightly higher rate.