Refinancing to remove mortgage insurance from your loan

Written by Samantha SheltonNMLS 1647301Updated October 2026

Refinancing removes mortgage insurance when the new loan lands at 80% or less of your home’s current appraised value, because conventional lenders are only required to carry mortgage insurance above that line. Before you refinance, though, check whether you have to: on a conventional loan, federal law gives you the right to ask your servicer to cancel private mortgage insurance once the balance is scheduled to reach 80% of the home’s original value, and it requires your servicer to terminate the coverage automatically at 78%.

The reason homeowners chase this at all is the monthly bill. Freddie Mac estimates private mortgage insurance runs roughly $30 to $70 a month for every $100,000 borrowed, so a $250,000 loan carries somewhere around $75 to $175 a month, or $900 to $2,100 a year, that disappears the day the coverage comes off.

FHA borrowers are the group that usually has no choice but to refinance, because FHA’s annual premium runs for the full mortgage term on most FHA loans no matter how much equity you build. Learn how refinancing to remove mortgage insurance actually works, when a simple cancellation request beats a refinance, and how to run the break-even before you pay a dollar in closing costs. If you’re new to the process, start with our refinancing guide.

Key takeaways:

• The 80% line is the whole game: Conventional mortgage insurance is required above 80% loan-to-value, so a refinance that puts your new loan at or below 80% of today’s appraised value drops the coverage at closing.
• You may not need a refinance at all: On a conventional loan you can request cancellation at 80% of the original value, and your servicer must terminate coverage automatically at 78%, provided you’re current on payments.
• FHA is why most people refinance: FHA’s annual premium lasts 11 years when the original loan-to-value was 90% or less on a term over 15 years, and the entire mortgage term when it was above 90%.

What is mortgage insurance, and why are you paying for it?

Mortgage insurance is a policy that protects your lender against loss if you stop paying, and you owe the premium whenever your loan exceeds 80% of what the home is worth. It buys you nothing directly. It simply makes a low-down-payment loan possible, a trade most buyers accept rather than wait years to save 20%.

On a conventional loan the coverage is private mortgage insurance (PMI). Fannie Mae requires it on any conventional first mortgage delivered with a loan-to-value ratio above 80%, which is exactly why 80% is the number every homeowner in this situation is aiming at. The CFPB’s explainer on private mortgage insurance covers how the premium can be billed monthly, upfront, or split between the two.

Each program handles it differently, and the difference decides your exit route.

• Conventional PMI: Priced by a private insurer using your credit score and loan-to-value ratio. It is cancellable by law, and it is the only one of these that comes off without a new loan.
• FHA mortgage insurance premium (MIP): Charged by the government in two pieces, an upfront premium of 1.75% of the base loan amount plus an annual premium collected monthly. Its duration is locked at origination, not by later equity.
• VA loans: No monthly mortgage insurance at all. VA charges a one-time funding fee instead, 0.5% on an Interest Rate Reduction Refinance Loan and 2.15% on a first-use cash-out refinance, and veterans receiving compensation for a service-connected disability are exempt.¹
• USDA guaranteed loans: Use upfront and annual guarantee fees rather than mortgage insurance, so the cancellation rules below don’t reach them.

Can you remove PMI without refinancing?

On a conventional loan, yes, and this is where most homeowners should start. The Homeowners Protection Act gives you two separate rights, and neither one costs you a closing.

• Request cancellation at 80%: You may ask your servicer to cancel PMI on the date your principal balance is scheduled to fall to 80% of the original value of the home. You’ll need to be current, and your servicer can ask for evidence that the property hasn’t lost value or picked up a second lien.
• Automatic termination at 78%: Your servicer must terminate PMI on its own on the date the balance is scheduled to reach 78% of the original value, again as long as you’re current on payments.
• The midpoint backstop: If a slow-amortizing loan never gets you there, the coverage still ends the month after you pass the midpoint of the amortization schedule, which is year 15 on a 30-year loan.

There’s a fourth path most homeowners never hear about, and it matters in a market where values have climbed. If Fannie Mae owns your loan, you can ask for termination based on the home’s current value rather than its original value. The thresholds tighten with age: a one-unit primary residence or second home needs a loan-to-value ratio of 75% or less if the loan is between two and five years old, or 80% or less once it’s more than five years old. You must be current, with no payment 30 days late in the past 12 months and none 60 days late in the past 24, and you pay for the appraisal or broker price opinion yourself.

Cancellation and refinancing are two routes to the same destination, and cancellation is almost always the cheaper one. Refinancing earns its keep when cancellation isn’t available at all, which is the FHA situation, or when the new loan improves something else about your terms. Our guide to using home equity wisely covers what else that equity can do once you’ve proven it.

How does refinancing eliminate mortgage insurance?

Refinancing eliminates mortgage insurance by replacing your current loan with a new one written at 80% loan-to-value or less against a fresh appraisal. Cancellation measures your progress against the home’s original value. A refinance resets the measuring stick to today’s value, which is why appreciation can put you over the line years before your amortization schedule would.

To find your loan-to-value ratio, divide the loan amount by the home’s value. If a home appraises at $350,000, the new mortgage has to come in at $280,000 or less to reach 80%. Say you bought at $300,000 with 5% down, owe $272,000 today, and the home now appraises at $350,000: your balance is 77.7% of the new value, the refinance clears 80% with room to spare, and the mortgage insurance is gone at closing.²

Two mechanics catch people off guard. First, the new loan is a rate-and-term refinance, which Fannie Mae calls a limited cash-out refinance, and it carries no general seasoning requirement, though at least one borrower must be on title at the time of application and cash back to you is capped at the greater of 1% of the new loan amount or $2,000. Second, the appraisal is the whole transaction. A value that comes in under your estimate can push the new loan above 80% and land you right back in mortgage insurance, so read refinance appraisal requirements before you order one, and check the credit, income, and equity thresholds in refinancing eligibility first.

PMI vs. FHA MIP: what each costs and how each comes off

The two look alike on your statement and behave nothing alike. Conventional PMI is cancellable by federal law; FHA’s premium is set at origination and, above 90% original loan-to-value, never expires on its own.³

A few FHA details are worth knowing before you assume you’re stuck. The duration is keyed to your original loan-to-value, so an FHA borrower who put 10% down is on an 11-year clock and may simply be able to wait it out. Older loans have their own rule: FHA monthly premium cancellation still exists for cases with a closing date after December 31, 2000 and a case number assigned before June 3, 2013, which cancel at 22% equity. And an FHA streamline refinance does not solve this problem, because the new FHA loan carries FHA mortgage insurance too. Only a conventional refinance ends it. Our breakdown of the pros and cons of refinancing an FHA loan weighs that trade in full, and HUD’s overview of FHA-insured lending explains the insurance the agency provides.

How do you run the break-even before you refinance?

Divide your total closing costs by the annual premium you’re eliminating, and the answer is how many years you need to stay. Freddie Mac tells refinancing homeowners to expect 3% to 6% of the loan principal in costs, which is $7,500 to $15,000 on a $250,000 refinance, and that figure is the numerator.

Drop $2,400 a year in mortgage insurance for $6,000 in closing costs and you break even in 30 months. Stay five years and you’re $6,000 ahead. Sell in 18 months and you paid $6,000 to save $3,600.

Three things move that break-even, and only one of them is under your control.

• The rate on the new loan: If today’s pricing is meaningfully above your current rate, the added interest can swamp the premium you eliminated. Check the week’s averages against your note rate using Freddie Mac’s Primary Mortgage Market Survey before you assume a refinance saves money.
• The term you reset to: Refinancing a loan you’re seven years into back to a fresh 30-year term lowers the payment and raises lifetime interest. A 20- or 25-year term keeps the payoff date closer to where it was.
• Which fees you shop: Lender charges and the services you’re allowed to shop for vary the most, and every quote itemizes them in the same order. Our walkthrough of refinancing closing costs shows which lines move, and the CFPB explains how to compare refinance offers on the Loan Estimate.

Be skeptical of a “no closing cost” refinance pitched as the obvious answer here. Freddie Mac is blunt about it: there is no such thing as a free loan, and the lender is either charging a higher interest rate or rolling the costs into your balance. That can still be right when cash is tight, but a higher rate for 30 years is a real price for skipping a one-time bill. Price it both ways.

When refinancing to remove mortgage insurance is the wrong move

Sometimes the best refinance is the one you don’t do, and a broker who never says that isn’t worth much. Four situations argue for waiting.

• You’re already close to 78%: If automatic termination is 14 months out, paying thousands to accelerate it rarely pencils. Ask your servicer for the scheduled termination date in writing.
• Your current rate is well below today’s pricing: A rate you’d be giving up is an ongoing cost, not a one-time one, and it compounds against you for the life of the new loan.
• You’re moving within a few years: Break-even periods measured in years only pay off if you stay past them.
• Your FHA loan is on the 11-year clock: If you put 10% or more down, the premium ends on its own. Count the months left before you buy your way out of them.

There’s also a middle path worth pricing: pay the balance down to the cancellation threshold instead of refinancing. A lump sum that moves you from 84% to 80% of original value costs you principal, which you keep as equity, rather than closing costs, which you don’t. Compare it against a refinance quote, and see where this fits in our refinancing and home equity guide.

Should you cancel your mortgage insurance or refinance to remove it?

It depends on the kind of insurance you have. Check the loan first, because the answer is often a letter to your servicer instead of a new loan.

Questions to ask your servicer first

• On what date is my mortgage insurance scheduled to end? Ask for the date in writing.
• Who owns my loan? Fannie Mae and Freddie Mac both allow a request based on today’s value once the loan has some age.
• What valuation will you accept, and what does it cost? You usually pay for it.
• Is my mortgage insurance borrower-paid or lender-paid? Lender-paid mortgage insurance cannot be canceled.

The CFPB’s guide to removing PMI covers your federal rights in plain language.

Leaving FHA before you reach 80%

A conventional refinance can help even above 80% of today’s value. That loan still carries PMI, but the PMI can be canceled later, while the premium on a high loan-to-value FHA loan never ends on its own. Price both before you decide.

A Michigan note

If you bought with MSHDA’s MI 10K DPA, a refinance makes that loan due. Get the payoff figure before you compare a refinance against waiting.

When a refinance is the only route, Samantha prices the conventional loan across multiple wholesale lenders and sets it against simply waiting for the insurance to end. Align places conventional and FHA loans, so that comparison is not limited to one bank’s products. Read more about mortgage insurance.

FAQ: Refinancing to remove mortgage insurance

Here are answers to common questions about refinancing to remove mortgage insurance.

Can I remove PMI without refinancing?

On a conventional loan, yes. Once the balance is scheduled to reach 80% of the original value you can submit a written cancellation request, and at 78% your servicer must drop the coverage automatically, provided your payments are current. If your home has appreciated and Fannie Mae owns the loan, you can also request termination based on a current appraisal you pay for. FHA mortgage insurance generally cannot be cancelled this way, as our overview of mortgage insurance explains.

How much equity do I need to refinance out of mortgage insurance?

You need 20% equity based on the home’s current appraised value, meaning the new loan must come in at 80% of that figure or less. On a home appraising at $350,000, the new mortgage has to be $280,000 or under. Appreciation counts toward that, which is why homeowners in fast-rising markets often hit the threshold years earlier than their amortization schedule predicts. Our guide to using home equity wisely covers what to do with the rest of it.

Is it worth refinancing just to drop mortgage insurance?

Only if the math clears. Compare the annual premium you’d eliminate against closing costs that Freddie Mac puts at 3% to 6% of the loan principal. Dropping $2,400 a year for $6,000 in costs breaks even in 30 months, which is usually worth it if you’re staying. If the refinance also raises your interest rate, the added interest can easily cost more than the insurance you removed, so price both against refinancing closing costs first.

Do I need an appraisal to remove mortgage insurance?

Usually yes, whenever you’re relying on appreciation rather than principal paydown. A servicer terminating coverage based on current value requires a valuation you pay for, and a refinance requires an appraisal as part of underwriting anyway. Some conventional refinances qualify for an appraisal waiver at lower loan-to-value ratios, which removes both the cost and the risk of a low value. See refinance appraisal requirements for what underwriters look for.

The bottom line on refinancing to remove mortgage insurance

Refinancing removes mortgage insurance when the new loan comes in at 80% or less of your home’s current appraised value. On a conventional loan you often don’t need to refinance at all, because you can request cancellation at 80% of the original value and your servicer must terminate coverage automatically at 78% once you’re current. FHA borrowers are the real audience for a refinance, since the annual premium runs 11 years at 90% original loan-to-value or below and the full mortgage term above that. With PMI costing roughly $30 to $70 a month per $100,000 borrowed and refinance costs running 3% to 6% of the loan, the decision comes down to one division problem: costs divided by annual savings equals the years you need to stay.

If you’re ready to find out whether dropping mortgage insurance beats keeping your current loan, talk to Align Lending, we’ll shop your scenario across our lender network and show you the break-even math and the competing quotes side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA funding fee amounts and exemptions are set by statute and VA policy and are subject to change. Return to text.

2. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your loan-to-value ratio, premium, closing costs, and break-even period depend on your application, your property’s appraised value, your loan program, and market conditions, and will be itemized on your Loan Estimate and Closing Disclosure. Return to text.

3. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA mortgage insurance premium rates, durations, and cancellation rules are set by HUD in Mortgagee Letters and Single Family Housing Policy Handbook 4000.1 and are subject to change. Return to text.

Sources: right to request PMI cancellation at 80% of original value, automatic termination at 78%, the amortization-midpoint rule, and the requirement that payments be current, Consumer Financial Protection Bureau; Homeowners Protection Act of 1998, 12 U.S.C. § 4901 et seq. Private mortgage insurance cost of approximately $30 to $70 per month for every $100,000 borrowed, and refinance costs of 3% to 6% of loan principal, and the statement that there is no such thing as a free loan on a no-cost refinance, My Home by Freddie Mac. Mortgage insurance required on conventional first mortgage loans with an LTV ratio above 80%, Fannie Mae Selling Guide B7-1-01. Borrower-initiated MI termination thresholds of 80% of original value, and 75% of current value for loans seasoned two to five years or 80% of current value after five years, plus payment-history and borrower-paid valuation requirements, Fannie Mae Servicing Guide B-8.1-04. No general seasoning requirement, ownership-at-application requirement, and cash-back limit of the greater of 1% of the loan amount or $2,000 on a limited cash-out refinance, Fannie Mae Selling Guide B2-1.3-02. FHA upfront mortgage insurance premium of 175 basis points (1.75%) of the base loan amount, annual MIP of 50 basis points at 95% LTV or below and 55 basis points above 95% LTV on terms over 15 years with a base loan amount of $726,200 or less, and MIP duration of 11 years at 90% original LTV or below versus the mortgage term above 90%, HUD Mortgagee Letter 2023-05 and Handbook 4000.1 Appendix 1.0. FHA monthly MIP cancellation limited to cases with a closing date after December 31, 2000 and a case number assigned before June 3, 2013, at 22% equity, U.S. Department of Housing and Urban Development. VA funding fee of 0.5% on an Interest Rate Reduction Refinance Loan and 2.15% on a first-use cash-out refinance, no monthly mortgage insurance on VA loans, and funding-fee exemptions, U.S. Department of Veterans Affairs. Weekly average mortgage rates, Freddie Mac Primary Mortgage Market Survey.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Mortgage insurance rates, cancellation rules, program guidelines, and closing costs change and vary by loan program, investor, servicer, and property; confirm your figures with your servicer, your Loan Estimate, and your Closing Disclosure, and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.

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