Mortgage insurance can feel like an unnecessary cost dragging down your monthly budget. It doesn’t protect you—it protects the lender. Yet, it’s often a requirement for many homebuyers, especially those who can't afford a large down payment.
You’re not stuck with it forever, though. The good news? You have options. This article outlines three smart ways to eliminate mortgage insurance. If you’re looking to save money, these methods can make a real difference. Let’s walk through what you need to know—step by step.
What is Mortgage Insurance?
Mortgage insurance is a fee that protects lenders in case you default on your loan. If you buy a house with less than 20% down, most lenders will require it. The idea is simple: more risk for them means more protection needed.
There are two main types. PMI (Private Mortgage Insurance) is for conventional loans. MIP (Mortgage Insurance Premium) is for FHA loans. Both serve the same purpose, but they work a bit differently.
PMI is usually paid monthly. You may also see it as an upfront fee or split between the two. MIP works with an upfront premium at closing and a yearly fee that’s broken into monthly payments.
Mortgage insurance doesn't lower your rate or improve your loan. It's simply a cost added to your payment.
How is Mortgage Insurance Calculated?
You’re probably wondering how much it adds to your mortgage. It depends on several factors.
Loan-to-Value (LTV) ratio is one of the biggest. This compares your loan amount to the home's value. A higher LTV means more risk, and that means higher insurance rates.
Next is credit score. A lower score usually means you’ll pay more. Lenders see lower scores as a red flag.
Then comes the loan type. FHA loans have set MIP costs. Conventional loans vary with different PMI providers. Even your loan size and term can impact the final amount.
Here’s the thing: mortgage insurance can cost anywhere from 0.3% to 1.5% of your loan annually. That may not sound like much, but on a $300,000 loan, that could be over $3,000 each year.
What Can I Do to Cancel My Payments Sooner?
Many homeowners want to know how to shake off mortgage insurance early. If you're one of them, you're in luck. There are three practical ways to do it.
Build 20% Equity in Your Home
This is the most straightforward route. Once your loan-to-value ratio drops to 80%, you can ask your lender to cancel PMI. Lenders are required by law to cancel it automatically once you reach 78%. But why wait?
You can reach 20% equity in a few ways. You can make extra payments toward your principal. Even rounding up your monthly payments can chip away at the balance faster. Or, if your home’s value has increased, your equity might have grown without you realizing it.
It’s worth getting a new appraisal. If your home's value is higher, that could push you over the 20% mark.
Refinance to a New Loan Without PMI
Refinancing is a strong option—especially if you originally got an FHA loan. Why? Because FHA loans require mortgage insurance for the life of the loan if you put down less than 10%.
Switching to a conventional loan can remove that burden. If your credit has improved and your home value has gone up, you might qualify for a better rate too.
This move can cancel the insurance and reduce your interest payments. But don’t forget to check refinance costs. Appraisals, title insurance, and lender fees can add up. Make sure the savings outweigh the costs.
Use a Piggyback Loan Strategy
Some buyers use this from the start, but it can still work after you buy. Here’s how it works: instead of paying PMI, you get a second loan to cover part of the down payment.
For example, you borrow 80% from one lender, 10% from another, and pay 10% down. The second loan fills the gap and avoids PMI altogether.
If you're already a homeowner, refinancing with a piggyback loan might still be an option. But beware—these loans usually have higher rates. Make sure it fits your financial situation.
When Should I Refinance My Mortgage?
Refinancing can be a great way to ditch mortgage insurance. But timing matters. Don’t rush in too fast, and don’t wait too long either.
Ask yourself: has my credit improved since I first got the loan? If the answer is yes, you might qualify for better terms. Also, consider how much equity you have. If your home has appreciated, refinancing without PMI becomes more likely.
Interest rates are another factor. If they’ve dropped since you got your loan, you could lower your payment overall—even with the same balance.
Don’t forget about costs. Refinancing isn’t free. Lender fees, appraisals, and closing costs need to be weighed against your potential savings. Use the next section to get a quick estimate.
Mortgage Refinance Calculator
Before pulling the trigger on refinancing, do the math. A refinance calculator helps you see the full picture.
You’ll need to input your current loan details. That includes your balance, interest rate, and term. Then, enter the new loan terms you’re considering.
The calculator will show your new monthly payment. More importantly, it will show your break-even point. That’s the time it takes for your monthly savings to cover the refinance costs.
If you’ll move or sell your home before the break-even point, refinancing might not be worth it.
There are many calculators online—try a few and compare. Numbers don’t lie, and this step can save you from a bad decision.
Cash-Out Refinance vs. Home Equity Loans
Now let’s talk strategy. If you’re trying to ditch mortgage insurance and free up cash, you might consider two options.
Understanding a Cash-Out Refinance
With a cash-out refinance, you replace your existing mortgage with a new one for more than you owe. You take the difference in cash. Some homeowners use this to pay off high-interest debt or fund home improvements.
But there’s a catch: if you borrow too much, you might end up with a high LTV again. That means new mortgage insurance might be required. Not what you want.
What About a Home Equity Loan?
A home equity loan is separate from your first mortgage. You borrow against the equity in your home and repay it over time.
This option keeps your original mortgage intact. You won't touch its rate or term. The risk here is managing two loans. If you struggle with budgeting, it could become a burden.
So which is better? It depends. If rates have dropped, a cash-out refinance might be more efficient. If not, a home equity loan could keep things simple.
Conclusion
Mortgage insurance isn’t forever. You can get rid of it. You just need to know your options and act strategically.
Whether you build equity, refinance, or try a piggyback loan, each path has pros and cons. The key is knowing where you stand financially and choosing what fits best.
Want to keep more of your money each month? Take time to review your loan, property value, and available tools. A little effort today can lead to real savings tomorrow.
Talk to a lender, run the numbers, and don’t wait for automatic cancellation. It’s your money—keep more of it.
