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I reached out to my lender today and he told me that:

  • If I have 78% LTV of the original home appraisal, PMI is dropped automatically; however,

  • If I reappraise the home and the value increased, making the LTV 78% or lower, then I will need to refinance the home to get rid of PMI (and I assume that usually incurs closing costs).

Is that correct? If I reappraise my home and show that it's worth more than before, I have to go through the whole refinancing process?

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    That may be your lender's policy - other lenders may be able to just use a new appraisal. Does the cost of the appraisal (say $500) get you to 80% if you pay it towards the loan instead? – D Stanley Mar 9 '18 at 17:06
  • My worry is not the cost of the appraisal, but the closing costs of refinancing. – Hill Mar 9 '18 at 17:27
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    No that's not the case. If I was only $500 or even $2,000 away from reaching 80%, I'd definitely not be worried about any of this hehe :-) – Hill Mar 9 '18 at 17:32
  • How is this not a duplicate of money.stackexchange.com/questions/20993/…? – JTP - Apologise to Monica Mar 10 '18 at 2:52
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    @Phil I'm paraphrasing, but that's more or less what you're asking. Your (re)appraisal is higher than the original, and you're asking how that interacts with removing PMI. – Joe Mar 12 '18 at 18:05
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The Homeowners Protection Act of 1998 lays out the minimum standards for mortgages in relation to PMI cancellation. There are two ways it can be cancelled: automatic, and borrower-requested.

Automatic is when it reaches 78% of the original value of the property - at that point, the bank must cancel PMI, regardless of the current value or any other details.

Borrower-requested is when the borrower requests it be cancelled. It requires only 80% of the original value (the lesser of the sales price or the appraisal at purchase), but it also requires the house not to have gone down in value. This may be where you're thinking an appraisal comes in; it's possible that the lender requires an appraisal to prove the value has not dropped.

There is nothing in the act allowing for it to be cancelled based on a new appraisal showing the value has risen, however. It's entirely possible that a mortgage might include such a term; it would not be required by law, however, so it's up to what was agreed on at signing.

You would potentially be able to refinance, of course, depending on your credit and other details, but it would not be free, obviously.

Here's the text:

Borrower-Requested Cancellations

A borrower may initiate cancellation of PMI coverage by submitting a written request to the servicer. The servicer must take action to cancel PMI when

• The principal balance of the loan

– Is first scheduled to reach 80 percent of the ‘‘original value’’4 (regardless of the outstanding balance), based on

– The initial amortization schedule (in the case of a fixed-rate loan)

– The amortization schedules (in the case of an adjustable-rate loan) or

– Reaches 80 percent of the ‘‘original value,’’ based on actual payments

• The borrower has a good payment history5

• The borrower satisfies any requirement of the mortgage holder for

– Evidence of a type established in advance that the value of the property has not declined below the original value and

– Certification that the borrower’s equity in the property is not subject to a subordinate lien

And the footnotes:

  1. Original value is defined as the lesser of the sales price of the secured property, as reflected in the purchase contract, or the appraised value at the time of loan consummation.

  2. A borrower has a good payment history if he or she (1) has not made a payment that was sixty days or more past due within the first twelve months of the last two years prior to the cancellation date or (2) has not made a payment that was thirty days or more past due within twelve months of the cancellation date.

  • Great answer. I've always wondered why it's not automatic at 80% instead of 78%. Also, footnote 5 is sometimes strangely interpreted to mean that you must have had the loan for at least 12 months too: money.stackexchange.com/q/44967/17718 – TTT Mar 10 '18 at 5:27
  • That really answers most of my doubts but one: if I reappraise (targeting 80%) and the value has not gone down, can they force me to refinance? – Hill Mar 12 '18 at 14:13
  • @Phil Nobody can force you to refinance. If you reappraise and the value is not lower than the original value, and you're at your 80% or lower payment from the schedule (ignoring the new appraisal now), they must remove your PMI. This 80% number is clearly laid out in your mortgage paperwork, if you still have that: both that and the 78% number should be explicitly called out in the full list of payments. (While I don't have PMI, my mortgage paperwork did so, for example.) That list should show every single payment and how much is principal/interest from each. – Joe Mar 12 '18 at 15:40
  • Note it is either actually lower than 80%, or scheduled to be lower than 80% - either one is fine. Of course if it's scheduled to be lower than 80%, and you were current on your payments, it must actually be lower - so that's sort of a silly way to write things - but, you know, laywers and such. – Joe Mar 12 '18 at 15:43

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