Can a lender refuse to remove PMI from your mortgage?
If you have a conventional mortgage and you pay PMI separately on a monthly basis, you should be able to have the PMI removed as long as you meet the requirements outlined in your mortgage note -- specifically in the private mortgage insurance rider or addendum to your note. For PMI to be cancelled, typically your loan-to-value (LTV) ratio must reach a certain level, which is usually 78% to 80%.
Your LTV ratio equals your outstanding mortgage balance divided by the fair market value of your property. If you pay down your loan balance or your property value increases due to improvements you made or appreciation in home values, then your LTV ratio decreases.
If you believe your LTV ratio has reached the level specified in your mortgage note, you can submit a request to your lender to have PMI removed from your loan. Your note should outline the specific steps you need to take for the PMI to be cancelled. You may be required to provide certain documentation and pay for an appraisal report that determines your current property value.
Review How to Remove PMI from Your Mortgage
Assuming you meet the requirements for LTV ratio, property value and any other necessary conditions, the PMI is eliminated from your mortgage. If your property does not appraise as expected or you do not satisfy a requirement, the lender can reject your request but you can always try again in the future.
The important point to understand is that your mortgage note provides a road map for removing PMI and the lender cannot refuse your request without a legitimate reason.
We should emphasize that the process outlined above only applies to conventional mortgages when you pay PMI separately. In this case, a portion of your monthly loan payment goes to pay PMI, as outlined on your mortgage statement.
There are also loan programs with non-cancellable mortgage insurance, which means you are required to pay insurance for the entirety of the loan, regardless of your LTV ratio or property value. If you have one of the programs outlined below, PMI or the equivalent mortgage insurance can never be removed from your loan. With these mortgages, if you ask the lender to remove PMI, they will rightfully refuse your request.
Conventional mortgage with lender-paid PMI. With this type of loan, instead of paying PMI separately, you pay a higher mortgage rate and the lender pays the PMI on your behalf. Lender-paid PMI cannot be removed unless you refinance your mortgage. In this case, PMI should not be referenced in your mortgage note.
FHA mortgage. With an FHA mortgage you are required to pay an upfront and ongoing mortgage insurance premium (MIP). Unless your LTV ratio at the time of closing is less than or equal to 90%, you are required to pay the monthly FHA MIP for your entire loan term. If your LTV ratio is 90% or lower, you are only required to pay the monthly mortgage insurance for the first eleven years of your loan. I both cases, you cannot request to have the MIP removed early for any reason.
USDA mortgage. You are required to pay upfront and monthly USDA mortgage insurance fees, also called guarantee fees. The monthly USDA guarantee fee is non-cancellable.
In closing, we recommend that you review your mortgage note to understand if your loan includes PMI. If you believe that you have met the requirements to have PMI removed and your lender refuses your request, you should file a complaint with the Consumer Financial Protection Bureau (CFPB) as well as your state attorney general.
Your mortgage note outlines the terms of your PMI and federal laws also regulate the removal of PMI. For these reasons, there is relatively little interpretation involved in determining if you are required to pay PMI and you should be able to resolve any dispute with your lender relatively quickly.
Sources
"B-8.1-04: Termination of Conventional Mortgage Insurance." Selling Guide: Fannie Mae Single Family. Fannie Mae, May 15 2019. Web.
View All Lenders%