What is mortgage insurance and when can you remove it?

Mortgage insurance can feel like an extra bill you didn't ask for. But if you put down less than 20% when you buy a home, it's usually part of the package. The good news? You won't pay it forever, and understanding how it works puts you in control of when you can drop it.

What Is Mortgage Insurance and Why Do Lenders Require It?

Mortgage insurance protects the lender if you default on your loan. It doesn't protect you or your home. It simply reduces the lender's risk when you borrow a large percentage of the home's value.

When you put down less than 20%, the lender assumes more risk. Mortgage insurance offsets that. It allows you to buy a home sooner without waiting years to save a full 20% down payment. For many buyers, that trade-off makes homeownership possible today instead of five years from now.

Once you build enough equity in your home (typically 20% or more), the lender's risk drops. That's when you can start exploring removal options.

Types of Mortgage Insurance: PMI, MIP, and Funding Fees

Not all mortgage insurance is the same. The type you pay depends on your loan program.

Private Mortgage Insurance (PMI) applies to conventional loans. If you put down less than 20%, you'll pay PMI until you reach 20% equity. PMI can be removed once you meet the requirements.

Mortgage Insurance Premium (MIP) applies to FHA loans. You pay an upfront premium (usually 1.75% of the loan amount) and a monthly premium. If you put down less than 10% on an FHA loan, MIP stays for the life of the loan. If you put down 10% or more, MIP drops after 11 years.

VA Funding Fee applies to VA loans. This is a one-time upfront cost (usually between 1.4% and 3.6% depending on your down payment and service history). VA loans don't require monthly mortgage insurance, which is a major advantage for eligible veterans and service members.

USDA Guarantee Fee applies to USDA loans. You pay an upfront fee (1% of the loan amount) and a monthly fee (0.35% of the loan balance annually). Like FHA MIP, USDA fees remain for the life of the loan in most cases.

Your CityWorth advisor can walk you through which type applies to your situation and help you compare the total cost across different loan programs.

How Much Does Mortgage Insurance Cost?

PMI on a conventional loan typically costs between 0.5% and 1% of your loan amount per year. On a $300,000 loan, that's roughly $125 to $250 per month. Your exact rate depends on your credit score, down payment size, and loan type.

FHA MIP is more standardized. The upfront premium is 1.75% (often rolled into your loan balance), and the annual premium is 0.55% for most loans with a down payment under 5%. On a $300,000 FHA loan, you'd pay around $137 per month in MIP.

VA funding fees vary but are typically lower than PMI or MIP on a monthly basis because there's no ongoing monthly charge. The upfront cost depends on your down payment and whether you've used your VA benefit before.

USDA fees are also fixed: 1% upfront and 0.35% annually. On a $250,000 USDA loan, you'd pay about $73 per month.

These costs add up over time, which is why knowing when and how to remove mortgage insurance matters.

Pro tip: If you're borderline on the 20% down payment, running the numbers with your CityWorth advisor can show you whether paying PMI short-term or stretching to hit 20% makes more financial sense for your budget.

When Can You Remove or Cancel Mortgage Insurance?

The rules depend on your loan type.

Conventional loans (PMI): You can request cancellation once you reach 20% equity based on the original purchase price. Your lender must automatically cancel PMI when you hit 22% equity, as long as you're current on payments. You can also request removal earlier if your home's value has increased and an appraisal shows 20% equity.

FHA loans (MIP): If you put down less than 10%, MIP stays for the life of the loan. Your only option to remove it is refinancing into a conventional loan once you have 20% equity. If you put down 10% or more, MIP drops after 11 years of payments.

VA and USDA loans: These don't have removable monthly insurance. VA loans have a one-time funding fee with no monthly cost. USDA monthly fees remain for the life of the loan.

If you want to eliminate MIP on an FHA loan, refinancing into a conventional loan is the most common path. CityWorth Mortgage can help you determine when refinancing makes sense based on current rates and your equity position.

How to Request PMI Cancellation: Step by Step Process

If you have a conventional loan and believe you've hit 20% equity, here's how to move forward.

Step 1: Check your loan balance and home value. Look at your most recent mortgage statement to confirm your current balance. Compare that to your home's original purchase price or current appraised value.

Step 2: Contact your lender. Call or email your loan servicer and request PMI cancellation. They'll explain their specific requirements, which may include an appraisal or proof that you've made no late payments in the past year.

Step 3: Order an appraisal if needed. If you're relying on home appreciation (not just paying down the loan), your lender will likely require a new appraisal. You'll pay for this (typically $400 to $600), but it can unlock monthly savings.

Step 4: Submit your request in writing. Some lenders require a formal written request. Keep copies of all correspondence.

Step 5: Confirm removal. Once approved, verify that PMI no longer appears on your next mortgage statement.

If you're close to the threshold but not quite there, ask your CityWorth advisor about making a lump-sum principal payment to reach 20% equity faster. Sometimes paying down a few thousand dollars can eliminate a monthly PMI cost and pay for itself in under a year.

Can I avoid mortgage insurance entirely?

Yes. If you put down 20% or more on a conventional loan, you won't pay PMI. Some lenders also offer lender-paid mortgage insurance, where the lender covers PMI in exchange for a slightly higher interest rate. Your CityWorth advisor can compare both options to see which saves you more over time.

Does refinancing remove PMI?

Refinancing into a new conventional loan can remove PMI if you have at least 20% equity. This works well if rates have dropped or your home's value has increased. CityWorth Mortgage can run the numbers to show whether refinancing makes financial sense in your case.

How long does it take to cancel PMI after I request it?

Most lenders process PMI cancellation requests within 30 to 45 days, assuming you meet all requirements and provide any necessary documentation (like a recent appraisal). If your loan balance has naturally dropped to 78% of the original value, cancellation happens automatically on your amortization schedule.

Can I cancel MIP on an FHA loan?

Not without refinancing. If you put down less than 10%, MIP stays for the life of the loan. Refinancing into a conventional loan once you have 20% equity is the standard solution. CityWorth's team can help you time that refinance to maximize your savings.

How CityWorth makes homebuying simple

CityWorth pairs your mortgage advisor with CityWorth Agents under one roof. That means your loan officer and real estate agent are already working together, which speeds up approvals, strengthens your offer, and eliminates the back-and-forth between separate companies.

Ready to explore your loan options and find out when you can drop mortgage insurance? Start your pre-approval at /get-started or call the CityWorth team at 571-520-8688. Whether you're buying your first home or refinancing to remove PMI, you'll have one team handling both sides of the process from start to finish.