What is PMI, and when can it come off a mortgage on the Space Coast?

Private mortgage insurance is usually required on a conventional loan with less than 20 percent down. You can ask to cancel at 80 percent of the original value, and it generally ends automatically at 78 percent.

Plenty of Space Coast buyers put down less than 20 percent. That is a normal path into a home in Melbourne, Viera, Merritt Island, or Satellite Beach, especially for relocation buyers who sold in another state and want to keep cash available for moving and furnishing. The trade-off is private mortgage insurance, often shortened to PMI.

PMI does not have to last forever, and the rules for ending it are spelled out. Here is what the federal Consumer Financial Protection Bureau says, along with a simple example of how the percentages work on a Brevard County purchase.

What is private mortgage insurance?

According to the CFPB, PMI is insurance you might have to buy on a conventional loan when your down payment is less than 20 percent of the purchase price. It protects the lender, not you, and you can still lose your home to foreclosure if you fall behind on payments. It is also usually required when you refinance a conventional loan with less than 20 percent equity.

You can pay for PMI with a monthly premium, a one-time up-front premium at closing, or both. If you pay up front and then move or refinance, you may not get a refund.

When can you ask to cancel PMI?

The CFPB explains that you can ask your servicer in writing to cancel PMI when your principal balance is scheduled to reach 80 percent of the home's original value. The first eligible date should appear on your PMI disclosure form. You can also ask earlier if extra payments bring the balance to 80 percent.

Original value means the lower of the contract sales price or the appraised value at purchase. After a refinance, it is the appraised value at the time of refinancing.

To grant a cancellation request, a servicer generally needs the following.

  • The request in writing.
  • A good payment history, and you are current.
  • Your certification that there are no junior liens, such as a second mortgage.
  • Proof, typically an appraisal, that the home's value has not dropped below its original value.

When does PMI end automatically?

Two automatic triggers exist, and you must be current on payments for either one.

Trigger What the CFPB says
78 percent The servicer generally must end PMI when the scheduled balance reaches 78 percent of the original value, even if you do not ask
Midpoint of the loan PMI must end the month after you reach the midpoint of the amortization schedule, such as after 15 years on a 30-year loan, even if the balance has not reached 78 percent

The CFPB notes that Fannie Mae and Freddie Mac may have their own cancellation rules, but those rules cannot be less favorable to borrowers than the rules above. The protections cover single-family principal residence mortgages closed on or after July 29, 1999. FHA and VA loans, and loans where the lender pays the insurance, follow different rules.

What does this look like on a $500,000 Space Coast purchase?

This is a simple illustration, not a prediction, and it assumes the appraisal equals the purchase price. Say you buy a home in Cocoa Beach, Rockledge, or Suntree for $500,000 with 10 percent down. Your loan is $450,000.

Milestone Calculation Balance
Original value Lower of price or appraisal $500,000
Request cancellation at 80 percent 0.80 x $500,000 $400,000
Automatic termination at 78 percent 0.78 x $500,000 $390,000

In this example, you would aim to bring the scheduled balance down from $450,000 to $400,000 before asking to cancel, or $390,000 for automatic termination. Your own loan documents show the actual dates.

What should Space Coast buyers keep in mind?

  • Ask your lender for the PMI disclosure form and note the first date you can request cancellation.
  • Extra principal payments can bring you to 80 percent sooner.
  • FHA and VA loans follow different rules, so confirm which applies to your loan type.

This is general information and not lending advice. Your loan documents and servicer control the details.

Frequently asked questions

Is PMI required if I put 20 percent down?

The CFPB says PMI is for conventional loans with a down payment of less than 20 percent of the purchase price, so a 20 percent down payment generally avoids it.

Can I cancel PMI before my balance reaches 80 percent?

The CFPB describes cancellation at 80 percent of original value, and notes you can request it earlier if extra payments get your balance there sooner. Ask your servicer about its process.

Where can I read the rules?

See the CFPB pages on what private mortgage insurance is and how and when to cancel it.

Planning a purchase on the Space Coast and weighing your down payment? My partner Nichole and I got your back. Reach out anytime at (321) 212-7676 or www.livingspacecoast.com.