Dropping PMI: the two dates already printed on your amortization schedule

Private mortgage insurance protects the lender, not you, and on a $360,000 conventional loan it runs somewhere between $110 and $190 a month depending on your credit score and loan-to-value. It is also the only part of your payment with a built-in end date, and most borrowers never find out when that date is.

It is not mysterious. It is arithmetic you can do from your closing documents, and both relevant dates are fixed on the day you sign.

Date one: 80 per cent, by request

The Homeowners Protection Act gives you the right to request cancellation in writing once the principal balance reaches 80% of the original value. You must be current on payments, have a good payment history, and the servicer may require evidence that the value has not declined, typically a broker price opinion you pay for.

On a $400,000 purchase with a $360,000 loan at 6.125%, the balance reaches $320,000, which is 80% of the original value, in month 91. That is seven years and seven months.

Date two: 78 per cent, automatically

The same Act requires the servicer to terminate PMI automatically when the balance reaches 78% of the original value based on the original amortization schedule, whether or not you ask, provided you are current.

On the same loan, 78% is $312,000, reached in month 105. Eight years and nine months. The gap between the two dates is fourteen months, and on a $150 premium that is $2,100 of avoidable expense for anyone who waits to be told.

There is a third date few people need: if neither threshold has been reached, PMI ends at the midpoint of the amortization period, month 180 on a 30-year loan. That matters on modified loans and on files where extra payments never happened.

The difference between requesting at month 91 and waiting for month 105 is fourteen premiums. Put the date in your calendar at closing.

The faster route: current value

Everything above is based on the original value. Separately from the Act, Fannie Mae permits cancellation based on a current appraisal: at 75% loan-to-value after two years of seasoning, or 80% after five years.

This is where Philadelphia appreciation does real work. If that $400,000 Fishtown row home is worth $470,000 four years later, your balance of roughly $338,000 is 72% of current value. You are already past the 75% threshold, three and a half years before the scheduled date, for the cost of one appraisal.

The servicer sets the appraisal process and will usually not volunteer this route. You have to ask, in writing, and be prepared to pay for the valuation.

Extra principal moves both dates

An extra $200 a month on that same loan pulls the 80% month from 91 to 70, and the 78% month from 105 to 80. Twenty-one months and twenty-five months earlier respectively, for $14,000 of additional principal that is not spent, only moved from your account into your equity.

Whether that is a good use of $200 depends on what else the money could do. At a 6.125% mortgage rate, prepaying is a guaranteed 6.125% return, which is a respectable benchmark. But it also ends the PMI earlier, which raises the effective return meaningfully above the note rate for as long as the premium lasts.

FHA does not work this way

None of the above applies to FHA loans that started above 90% loan-to-value. Their annual mortgage insurance premium runs for the life of the loan. There is no request, no automatic termination and no appraisal route.

The exit is a conventional refinance once your loan-to-value reaches 80% on a current appraisal. That is a full transaction with full closing costs, so it needs its own break-even analysis. On a $360,000 FHA loan, dropping roughly $165 a month against $4,200 of costs recovers in about 25 months, which usually makes it worth doing.

We hand every FHA borrower a dated schedule at closing showing the month their balance reaches 80% of the purchase price. It is the single most useful piece of paper in the folder.