In order to remove the MIP from your FHA loan you must refinance your loan if you have not paid down the loan to the original 80% value and you secured your mortgage after June 3rd 2013 . If you are confident your home will have 20% equity when you complete the refinance process you should refinance to a conventional mortgage. For conventional loans, however, PMI cancellation follows a different set of rules, covered below.
FHA differentiates between a 30 year and 15 year fixed loan as to when you can cancel your FHA monthly(annual) mortgage insurance premium. if you secure your FHA loan after June 3rd, 2013 …..never!
30 Year Loan Term – must pay the monthly (annual) insurance premium for a minimum of 60 months (5 years) and the loan must reach 78% loan-to-value (LTV) as a result of paying the loan down (amortization). LTV is not determined by the new home value, it’s determined by the original sales price of the home.
15 Year Loan Term – there is NO requirement that MIP be paid for 60 months but the LTV must be 78%. LTV is based on paying the loan balance down, not current appraised value of the home.
When Will My Loan Balance Get to 78% LTV?
Don’t forget, you cannot get an appraisal to determine the LTV. There is no set number of months it wilbecause it varies slightly based on the interest rate rate and size of the down payment, but for those who have a 30 year mortgage and put 3.5% down, it will take between 9-10 years to get down to 78% LTV.
A 15 year fixed mortgage will pay down to 78% LTV between 2-2.5 years. Remember, FHA does not require 15 year loans to keep the annual MIP for a minimum of 60 months.
Request PMI Cancellation
On a conventional loan, you can generally request PMI cancellation once your loan balance reaches 80% of the home’s original value, provided your payment history is current and there are no additional liens on the property. The request goes to your loan servicer in writing. For an independent explanation of how this works, see the CFPB’s guide to private mortgage insurance.
Automatic PMI Termination
Unlike a request for PMI cancellation, automatic termination requires no action on your part. Under federal law, PMI on a conventional loan generally must terminate automatically once your loan balance is scheduled to reach 78% of the home’s original value, as long as payments are current.
Final PMI Termination
If payments have not stayed current, final termination rules still apply: PMI generally must end by the midpoint of your loan’s original amortization schedule, even if you never submitted a request for PMI cancellation yourself.
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