PMI removal: check your loan-to-value and generate the letter

Private mortgage insurance protects the lender, not you, and you pay for it. On a $511,000 loan it can run about $233 a month, which is $2,801 a year for as long as it lasts. The law says when it has to stop and when you can ask for it to stop early. The only work is knowing your numbers and putting the request in writing, which is what the calculator above does.

The three thresholds

The Homeowners Protection Act of 1998 sets two lines against the original value of your home, which is the lower of the purchase price and the appraisal when the loan was made:

• 80%: you can request cancellation. Your balance has to be at or under 80% of original value, either because the amortization schedule says so or because you paid it down there. You must be current, with a good payment history (no 30-day late in the past year, no 60-day late in the past two), and the servicer can require that there are no other liens on the property and that the value has not fallen.
• 78%: cancellation is automatic. On the date the scheduled amortization takes the balance to 78% of original value, the servicer must cancel PMI as long as you are current. No request needed, but it does not hurt to know the date and check the statement that month.

There is a third path that is not in the Act but is standard practice for loans sold to the big investors, which is most conventional loans:

• 80% of current value. If your home has gone up in value, you may be under 80% today even though you are nowhere near it on the original number. Servicers commonly allow cancellation on current value once the loan is two years old (some require 75% until year five), with a new appraisal or broker price opinion ordered through them at your expense, typically a few hundred dollars.

Why the current-value path matters

Take a real-shaped example. First mortgage $511,000; the home appraised at $555,000 at purchase. On original value the loan is at 92%. The balance would have to fall to $444,000 before the 80% line, which is years away on a normal schedule.

Now suppose the area has appreciated and you have receipts for improvements, and a realistic current value is $637,000. On current value the same loan is at 80.2%, essentially at the line. One more payment, or a valuation that comes in a little higher, and the request is straightforward. That is about $2,800 a year that a purchase-appraisal view would have kept you paying.

This is why Ample judges PMI against a current, defensible value rather than the number from closing day. Enter both in the calculator and it shows you both loan-to-values and which path, if any, is open.

Only the first mortgage counts

PMI is on the first lien, and the loan-to-value that matters is the first mortgage alone against the value. A second mortgage, a HELOC, or a down-payment-assistance lien does not raise the first lien's LTV. It can matter in a different way: some servicers ask about subordinate liens as a condition of cancellation, so disclose one if you have it rather than letting them find it. The generated letter has a line for this.

What the letter needs to say

Servicers get these requests all the time, and the ones that move fastest are the ones that arrive complete. The letter the calculator writes includes:

• your loan number and property address,
• the current balance and, if you gave it, the monthly PMI amount,
• loan-to-value on original value and on current value, with the basis for the current value,
• the legal ground you are asking under: the 80% original-value right, or the current-value path,
• a statement that payments are current and whether there are other liens,
• a request for their exact requirements, whom to pay for any valuation and how to order it, and the date the premium will stop.

Copy it, paste it into an email or letter, and send it by whichever method your servicer lists for written requests. Keep a copy and note the date. Servicers are required to respond to written requests, and having the date pins the clock.

What to expect after you send it

If you are at 80% of original value, the servicer confirms your payment history and, sometimes, orders a check that the value has not dropped. If you are asking on current value, they will tell you how to order the appraisal or broker price opinion through their approved channel. Do not order one on your own first; most servicers only accept valuations they arranged.

When approved, the premium comes off the next escrow analysis, and any prepaid premium is refunded. If the valuation comes in low, you are out the appraisal fee and PMI continues; you can try again later, usually after a waiting period. That is the honest downside, and it is why the calculator shows how close you are before you spend the money.

FHA and other loans

This guide is about conventional loans with private mortgage insurance. FHA loans carry a mortgage insurance premium with different rules; for FHA loans made since June 2013 with less than 10% down, it usually lasts the life of the loan, and the way off it is refinancing into a conventional loan once you have the equity. VA loans have no monthly mortgage insurance. Lender-paid PMI is built into the rate and cannot be cancelled.

What Ample does with this

Ample tracks your first-mortgage balance from the servicer connection, keeps a current value you can defend line by line (appraisal, area appreciation, a renovation ledger with receipts), and shows the first-lien loan-to-value on the Home page. When it crosses the line on either basis, PMI removal appears as a Move with the yearly saving on it. Approve, and the letter is written with your numbers, ready to send.