Key Takeaways
- Private mortgage insurance (PMI) can add $100 to $300 or more to your monthly payment, and refinancing into a conventional loan with at least 20% equity is one proven way to remove it.
- You may not need to refinance at all. Federal law requires automatic PMI cancellation on conventional loans when your principal balance reaches 78% of the home’s original value.
- FHA loan borrowers face different rules. FHA mortgage insurance premiums (MIP) often last the life of the loan, making a refinance into a conventional loan the primary way to get rid of them.
- Refinancing has real costs. Use a break-even calculator to confirm the savings outweigh closing costs before you proceed.
- This approach is completely legal and widely used by homeowners across the country.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Consult a qualified mortgage professional before making refinancing decisions.
Can You Refinance to Remove PMI?
Yes, refinancing to remove PMI is a legal and common strategy for homeowners who have built sufficient equity in their home. If your home value has risen or you have paid down your loan balance enough to reach 20% equity, you can refinance into a new conventional loan without private mortgage insurance.
This is especially relevant for FHA loan borrowers. According to federal housing guidelines, most FHA loans originated after June 2013 carry mortgage insurance premiums (MIP) for the entire life of the loan. The only way to get rid of MIP on these loans is to refinance into a conventional loan.
What Is Mortgage Insurance?
Private mortgage insurance is a fee your lender requires when you put less than 20% down on a home purchase. It protects the lender – not you – in case you default on the loan. PMI typically costs between 0.5% and 1.5% of the loan amount per year, which can add a significant amount to your mortgage payment each month.
PMI vs. MIP
PMI applies to conventional loans backed by entities like Freddie Mac and Fannie Mae. MIP is the equivalent for FHA loans, administered by the Federal Housing Administration. The key difference is how they are removed.
- PMI (conventional loans): Can be canceled once you reach 20% equity based on the original value of your home, or it drops off automatically at 22% equity.
- MIP (FHA loans): On most current FHA loans, MIP lasts the entire loan term if you put less than 10% down. Refinancing into a conventional loan is typically the only way to remove it.
When Does PMI Go Away?
Under the Homeowners Protection Act (HPA), your servicer must follow specific rules about PMI cancellation on conventional loans. According to the Consumer Financial Protection Bureau, here are the key thresholds:
Can I Request Cancellation When My Principal Balance Hits 80%?
Yes. You can request that your lender cancel PMI once your principal balance reaches 80% of the home’s original value. You must be current on payments and may need to prove through an appraisal that the value of your home has not declined.
Is PMI Automatically Canceled at 78%?
Yes. Your servicer is required by federal law to automatically cancel PMI when your loan balance reaches 78% of the original value, as long as you are current on your mortgage payments.
Is PMI Canceled Halfway Through My Loan Term?
Yes. Even if your balance has not reached 78%, your servicer must cancel PMI at the midpoint of your loan’s amortization schedule. For a 30-year loan, this would be at the 15-year mark.
Can PMI Be Canceled Earlier With a Freddie Mac or Fannie Mae Loan?
Loans backed by Freddie Mac or Fannie Mae may allow earlier cancellation based on the current home value rather than the original value. This can benefit homeowners in areas where home equity has grown quickly. Contact your servicer to ask about your specific options.
How to Get Rid of PMI
You have several paths to remove PMI from your mortgage payment. Here they are in order of complexity:
- Request cancellation from your servicer. If your conventional loan balance is at or below 80% of the original value, contact your lender to request removal. This costs nothing beyond a possible appraisal fee.
- Wait for automatic cancellation. If you are close to the 78% threshold, simply staying current on payments will trigger automatic removal.
- Get a new appraisal. If you believe the value of your home has increased significantly, a new appraisal showing 20% or more home equity may allow early cancellation.
- Refinance into a conventional loan. This is often the best option for FHA loan holders or homeowners who want a better interest rate at the same time. Use Wirly’s refinance calculator to estimate your new monthly payment.
Should You Refinance to Remove PMI?
Refinancing makes the most sense when you can accomplish multiple goals at once – removing PMI, securing a lower interest rate, and keeping closing costs manageable. Here is when it typically works well:
- You have an FHA loan and MIP cannot be canceled otherwise.
- You have at least 20% equity in your home based on current market value.
- Your credit score has improved since your original mortgage, qualifying you for better rates.
- You plan to stay in the home long enough to recoup closing costs.
Risks and Considerations
Refinancing is not always the right move. Before you proceed, consider these potential drawbacks:
- Closing costs: Refinancing typically costs 2% to 5% of the loan amount. If your PMI savings are modest, it could take years to break even. Use the break-even calculator to run the numbers.
- Resetting your amortization: If you are 10 years into a 30-year mortgage and refinance into a new 30-year loan, you restart the clock. This means more interest paid over the life of the loan.
- Appraisal risk: Your home may not appraise as high as you expect, leaving you short of the 20% equity threshold.
- Credit score impact: Applying with multiple lenders generates hard inquiries on your credit report. However, rate shopping within a 14 to 45 day window typically counts as a single inquiry for scoring purposes.
- Moving soon: If you plan to sell within the next two to three years, the closing costs of a refinance may never be recovered.
- Hidden fees: Watch for title insurance, appraisal fees, and potential prepayment penalties on your existing loan.
According to CFPB complaint data from 2024, “trouble during the payment process” is the most common mortgage complaint across major servicers. When refinancing, make sure you understand the transition between your old and new servicer to avoid payment processing issues.
Why Homebuyers Should Not Stress About PMI
PMI is not permanent, and it is not wasted money. It allows homeowners to purchase a home sooner with less than 20% down. For many buyers, the wealth-building benefits of homeownership outweigh the temporary cost of mortgage insurance.
As your home equity grows through appreciation and regular payments, PMI eventually goes away – either through cancellation or a well-timed refinance. Compare your options with top-rated refinance lenders when you are ready.
FAQ
Is refinancing to remove PMI legal?
Absolutely. Refinancing to remove PMI or MIP is a standard, legal practice. There is nothing unusual or risky about it from a regulatory standpoint.
When can you refinance to get rid of PMI?
You can refinance once you have approximately 20% equity in your home, a qualifying credit score (typically 620 or higher for conventional loans), and enough income to meet the new lender’s requirements.
Is it worth refinancing just to remove PMI?
It depends on how much PMI costs you, what interest rate you can get, and how long you plan to stay in the home. Run the numbers with a break-even calculator to compare total costs.
Can I remove FHA MIP without refinancing?
For most FHA loans originated after June 2013 with less than 10% down, MIP lasts the life of the loan. Refinancing into a conventional loan is typically the only path to removal.
How much does it cost to refinance?
According to the Consumer Financial Protection Bureau, closing costs typically range from 2% to 5% of the loan amount. On a $300,000 loan, that could be $6,000 to $15,000. Some lenders offer no-closing-cost options, though these usually involve a slightly higher interest rate.
Sources
- Consumer Financial Protection Bureau (CFPB) – PMI cancellation rules and consumer guidance
- CFPB Complaint Database – 2024 mortgage servicer complaint data referenced for consumer warnings
- Freddie Mac – PMI removal guidelines for conforming loans
- Homeowners Protection Act (HPA) – Federal law governing automatic PMI cancellation
Sources
- CFPB (Consumer Financial Protection Bureau) – Official consumer protection guidelines and mortgage resources
- Freddie Mac Primary Mortgage Market Survey – Weekly benchmark mortgage rate survey dating to 1971
Written by the Wirly Editorial Team. Last reviewed: March 29, 2026. Fact-checked against CFPB consumer guidance, CFPB complaint data 2024, Freddie Mac PMI guidelines, Homeowners Protection Act. See our methodology for how we evaluate lenders.