Home prices increased nationwide by 5.3% from Spring 2023 to Spring 2024, and a staggering 54% since 2019, according to CoreLogic. 

Generally, homeowners must build up 20% equity in their homes before they can cancel their private mortgage insurance (PMI). However, when a home’s value increases, so does one’s equity. 

 What is Private Mortgage Insurance (PMI)? 

PMI is a type of mortgage insurance that protects the lender if a borrower stops making payments. This often manifests as an additional monthly fee with your mortgage. 

PMI is usually required when you obtain a conventional mortgage and make a down payment of less than 20%. If you make a down payment of less than 20%, your loan-to-value (LTV) ratio will be 81% or higher. 

When Does PMI Go Away?

The Federal Homeowners Protection Act (HPA) allows homeowners to request to cancel their PMI automatically when they reach a specific home equity value, typically 80%. 

When your LTV drops to 78%, your lender or servicer is legally obligated to terminate PMI.

Rising Home Values May Allow You to Cancel Your PMI Faster

If the appraised value of your home has increased since the time of purchase, it means your equity has grown as well.

Rising home values can build equity and increase your stake in the property, making you a potentially lower-risk borrower. If you believe your home value has grown, connect with your servicer to take the next steps towards potentially canceling your PMI. 

You can always increase the value of your home through home improvement projects as well. A renovated kitchen, a new porch, new windows, or an add-on room may increase your home’s value, and your equity as well. 

An Example of How an Increase in Value Increases Your Equity

For example, let’s say you purchased your home for $400,000 a few years ago with $56,000, or 14% down. Your LTV was greater than 81%, so you’re paying PTV.

As home prices have increased in your neighborhood, you find that the current value of your home to be $565,000. 

Your equity is now more than $121,000, or 24%. This figure includes your $56,000 down payment, as well as the $65,000 in equity gains due to market appreciation- and that’s not counting the additional equity you’ve built making mortgage payments. 

Closing Thoughts

PMI is a monthly cost that many homeowners are eager to remove. If you want to cancel PMI, you need to build up at least 20% equity in your home through a large down payment, consistent mortgage payments, or a rising home value. Give us a call or visit us online to determine the best strategy for managing your PMI payment today.