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When Can You Cancel Mortgage Insurance (MI)?

Conventional - The easy answer is after 2 years. But there are certainly exceptions to this, and they are growing
and evolving.  More explained below.

FHA - Never
USDA - Never

The rest of this page will discuss how to cancel mortgage insurance for conventional financing since it's really the
only loan that will allow the MI to be cancelled.

The first main question to ask is whether you are basing value using original appraisal, or a new appraisal after
original closing date.  The 2nd matrix in the weblink below has 3 tabs-one is original value, one is current value,
one is auto-termination.

www.nationalmi.com/mi-cancellation <http://www.nationalmi.com/mi-cancellation>

The short answer: 
There is a 2-year minimum where MI must remain on the loan, based on ORIGINAL amortized payment
schedule.  Anything less than 2-years is an exception to the rule.

The exception in this area is lenders who service their own loans, as they have direct control.

The long answer:
The 2-yr min does NOT apply if loan reaches 80% LTV during regular payment amortization-an example
would be an original loan amount at 82% LTV and LTV hits 80% after 6-months of payments.  HOPA &
Fannie/Freddie allow MI to be cancelled in this case.  But since most loans won’t hit 80% for a number of
years, Fannie has a 2-yr minimum rule, where borrower must make 2-years of payments before being
eligible to cancel MI, regardless of LTV.  Because of Fannie’s rule, most servicers (it’s the servicer that
matters, not the investor) & MI companies will tell you that they, too, have 2-yr min seasoning rule.  For
example, 2-months after loan closes, borrower makes an extra $50,000 payment, bringing the LTV down
to 60%. The MI would not be cancelled as it’s based on the ORIGINAL amortized schedule of payments. 
However, Fannie says servicers can choose to waive the Fannie rule as long as LTV is 75% or less.  Most
servicers are very hesitant to waive the 2-yr minimum, as they remove their own protection provided via
potential MI claims payout in case of borrower default. 

The appraisal, ordered by the servicer, would need to support the value very clearly.

Mortgage insurance companies take their marching orders from the SERVICER as to when MI should be cancelled. 
So it’s the servicer, not the MI company, who gives the order to cancel coverage.  Often, the servicer is in no
hurry to increase their exposure by removing insurance coverage. The exception would be a lender who services
their own loans, as they, by definition, can tell the MI company to cancel MI coverage.  Explained in more detail
below. 

In regards to when a borrower can request MI cancellation based on principal curtailments or using CURRENT
appraised property value (as opposed to ORIGINAL property value at time of purchase), here is some helpful info
from Fannie on the subject:  https://www.fanniemae.com/content/guide/servicing/b/8.1/04.html (a section of
this is pasted below).


The servicers seem to want 2-years in order to feel comfortable with a trend of timely payments prior to
allowing MI to be cancelled, even if a new appraisal supports that LTV has dropped below 80% due to
appreciation.  It’s not necessarily that the LTV is there or not, but a confidence level that the borrower will make
payments.  It’s up to servicer’s discretion if they want to cancel MI prior to reaching 78-80% through normal
amortized schedule based on original appraised value.  If borrower has made extra payments or made property
improvements, the servicer would be more inclined to cancel the MI.  Value appreciation is rarely an exception
to drop MI as it can fall as quickly as it rises.  As you know, once normal amortized schedule hits 78%, servicer
automatically sends notice to NMI to cancel MI.

One MI company tells me that the following is needed to cancel:
The borrower would submit a letter requesting MI cancellation from the servicer. 
The servicer would then choose whether to proceed with an exception to 2-yr Fannie seasoning rule.
If exception approved, servicer would then order a new full interior/exterior appraisal
If value was supported, servicer would send a letter to National MI requesting MI cancellation, and we’d
have it cancelled within 30-days, no questions asked.

It’s not a slam-dunk to get MI cancelled with a new appraisal, but at least you know you have a shot

Additional MI cancellation helpful links:
National MI site:  www.nationalmi.com/mi-cancellation <http://www.nationalmi.com/mi-cancellation>
National MI cancellation FAQ:  www.nationalmi.com/wp-content/uploads/2014/11/MK.CAN_1114.pdf
<http://www.nationalmi.com/wp-content/uploads/2014/11/MK.CAN_1114.pdf>
CFPB:  www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-
from-my-loan.html <http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-
mortgage-pmi-insurance-from-my-loan.html>

Additional MI cancellation helpful links:
National MI site:  www.nationalmi.com/mi-cancellation <http://www.nationalmi.com/mi-cancellation>
National MI cancellation FAQ:  www.nationalmi.com/wp-content/uploads/2014/11/MK.CAN_1114.pdf
<http://www.nationalmi.com/wp-content/uploads/2014/11/MK.CAN_1114.pdf>
CFPB:  www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-
from-my-loan.html <http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-
mortgage-pmi-insurance-from-my-loan.html>

Fannie Mae guidelines regarding MI cancellation: