How to Drop Mortgage Insurance on a Conventional Loan as Value Rises

The Quick Read: Rising value can end mortgage insurance early, but only through the investor-policy route, not through the federal law most people have heard of. Fannie Mae and Freddie Mac let a servicer cancel borrower-paid insurance on current value once the loan has aged enough and the balance falls to a set share of that value. You ask the servicer, pay for a valuation, and keep paying until the cancellation is confirmed in writing.

Two rule sets get mixed up constantly, and the mix-up is where most failed requests start. One tests against the value you paid at purchase. The other tests against what the home is worth today. Keep them apart and the whole process gets easier to plan.

Why Does Mortgage Insurance Exist on a Conventional Loan?

Mortgage insurance covers the investor if a loan with a thin down payment goes bad. On the conventional loans Lendmire arranges through its wholesale lenders, it is required above 80% loan-to-value. Across the conventional loan programs a first-time buyer can go in at 97% leverage on a one-unit primary residence. Other primary-residence buyers can go to 95%. Both leave you above the 80% line on day one, so insurance is part of the payment. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. Your actual figure depends on your file and the program.

The good news: borrower-paid insurance is built to come off. The question is which rule lets you off, and when.

Two Rule Sets: Original Value vs. Current Value

Federal law tests against the original value. Investor policy can test against the current value. Appreciation only helps on the second route.

The CFPB explains that you can ask your servicer to cancel on the date your balance is scheduled to reach 80% of the home’s original value. You can ask earlier if extra payments get you there sooner. The conditions are practical: a written request, a good payment history, a certification that you have no junior liens, and evidence that value has not dropped below the original figure.

Automatic termination is separate. It comes at 78% of original value if you are current. The same CFPB page also describes a backstop at the midpoint of the loan term, which applies more often to loans with interest-only periods or balloon payments.

Here’s the catch. None of that credits your home’s rise in price. A house that gained a lot of value in a few years still has a balance sitting at, say, 90% of the original value on the amortization schedule. The federal route says wait. The investor route says prove it.

How the Current-Value Route Works

Fannie Mae’s Servicing Guide B-8.1-04 sets the current-value test for a one-unit principal residence or second home. Freddie Mac’s guide, section 8203.2, uses the same structure. The tiers:

Seasoning means how long the loan has been outstanding. Two years is the floor for the 75% test. The improvements exception waives the two-year wait only when your own renovations raised the value, and the cap there is 80%.

Think of it as a two-axis check. Loan age picks the line. Today’s valuation tells you whether you are under it. A borrower three years in needs the balance at 75% or less of the new value. A borrower seven years in needs 80% or less.

Here’s a scenario with no dollar figures. Say you bought with 5% down on a primary residence and the neighborhood has appreciated steadily. Four years in, your balance has come down a little, but most of your equity gain is market-driven. Against the original value you are still well above 80%, so the federal route is closed. Against a fresh valuation, you may be under 75%. That gap is the whole opportunity. It only exists on the current-value route.

Step by Step: What Actually Happens

This is the sequence on a typical file. Run it in order, because skipping the first step is a common reason borrowers waste a valuation fee.

1. Find out who owns the loan and what type of insurance you have. Ask the servicer whether Fannie Mae or Freddie Mac owns the loan. Ask whether the insurance is borrower-paid or lender-paid. Fannie Mae’s own materials state that lender-paid insurance is not cancellable by the borrower.

2. Compute your LTV two ways. First, current balance against original value. Second, current balance against a realistic estimate of today’s value. If the first is already at 80% or less, use the federal route and skip the valuation.

3. Check the loan age. Under two years, the only current-value path is the improvements exception. Two to five years, you need 75%. Past five, 80%.

4. Check your payment history. Fannie Mae’s consumer page says you may need to show no payment 30 or more days late in the past year and none 60 or more days late in the past two. The guide measures those windows backward from the later of two dates: when the balance reaches or is scheduled to reach 80%, or when you request termination. One late payment can push the window out.

5. Check for junior liens. A HELOC or second mortgage can block cancellation. If you opened one, sort that out first.

6. Submit the request to the servicer. Do it in writing. Servicers must respond to written requests under the federal law. Some investor guidance allows verbal requests, but a written record protects you.

7. Pay for and complete the valuation. The servicer orders a broker price opinion or an appraisal, at your expense. Freddie Mac requires the servicer to verify current value after the request and, for a BPO, calls for an interior and exterior look unless law or the servicer requires an appraisal. Fannie Mae’s Servicing Guide F-1-02 sets the fees by valuation type and says the servicer orders only after receiving payment. The guide controls the cost, so ask the servicer for the exact amount. Timing varies by file and servicer.

8. Get the decision in writing. If the valuation supports termination, the servicer ends the insurance and notifies you. If the value comes back below the original value, the request is denied unless you pay the balance down enough or verify value another way.

9. Confirm premiums stopped before you stop paying. Under the federal law the servicer must stop collecting once your written request and the evidence and certification requirements are met, though how long the process takes varies by file and servicer. Do not drop the payment on your own and then wait for a letter.

The Improvements Route

Renovations can shorten the wait, but only certain ones count. Fannie Mae describes qualifying improvements as renovations that substantially improve marketability and extend the home’s useful life. Freddie Mac’s guide, section 8203.3 uses the same type of language.

Three practical points from files like these:

• The valuation has to happen after the work is done. A valuation ordered mid-project will not capture it.
• The valuation should describe the nature, extent and cost of the improvements and their effect on value. Keep receipts, permits and contractor invoices together.
• Fannie Mae’s servicer FAQ offers a reasonableness test: what you spent should be commensurate with the extra paydown you would otherwise need to reach the LTV line. A modest paint job against a large gap will not pass that smell test.

Routine upkeep, such as a new water heater to replace a failed one, generally does not read as value-adding. A finished addition, a full kitchen rebuild or a new roof on an older house is closer to what the guides describe.

Where the General Rule Breaks

The rules above cover the standard case. These are the edges that catch borrowers.

Lender-paid mortgage insurance. With this structure the lender pays the premium, usually in exchange for a higher note cost. Fannie Mae’s servicing guide requires lender-purchased coverage to stay in effect until payoff. The usual exit is a refinance, not a request.

Second homes. Fannie Mae applies the same current-value tiers to a one-unit principal residence or second home. The federal law’s statutory protections are aimed at principal residences.

Multi-unit and investment properties. The tests get stricter. Freddie Mac’s section 8203.3 requires 65% or less on current value with at least two years of seasoning for its non-HPA category. Fannie Mae’s tiers for these properties sit in B-8.1-04 and are lower than the one-unit figures. If your property is not a one-unit home, read the guide’s table for your exact case rather than assuming 75% or 80%.

Value declines. If the current value is below the original value, the original-value route is denied. Appreciation helps. A dip hurts.

Young loans. Fannie Mae applies the payment-record test to the time the loan has been outstanding, or since an assumption. A loan under 24 months old does not have a full 24-month record to show.

FHA loans. FHA mortgage insurance premium is not PMI and does not follow these servicer rules. Fannie Mae notes it is more complicated and may involve a refinance. Everything here is about conventional loans. For that side, see Lendmire’s piece How to Drop FHA Mortgage Insurance as a First-Time Buyer.

Loans from before July 29, 1999. The federal protections described by the CFPB apply to single-family principal residences closed on or after that date. Older loans follow different treatment, and some servicers allow removal under their own standards.

A New Rule on Outreach

Fannie Mae’s Lender Letter LL-2026-07 lets servicers proactively contact borrowers who may be eligible to end insurance based on current value. Orrick reports the change was made at FHFA’s direction and takes effect immediately. American Banker describes it as bringing Fannie Mae in line with Freddie Mac, which already allowed this outreach.

What it changes: the servicer may call you. What it does not change: your right to ask first. Borrowers who run their own numbers do not have to wait for a letter. A servicer outreach program is an added option, not a replacement for doing the math.

Reappraise or Refinance?

Both routes can end the insurance. They cost different things and reset different clocks.

A refinance brings a new note and new closing costs, so the break-even math needs an actual quote from a loan estimate, not a guess. One note for borrowers who want cash out as well: on a one-unit primary residence, conventional cash-out tops out at 80% LTV, and the loan being paid off generally needs to be at least 12 months old. Lendmire’s piece on whether a conventional refinance can drop PMI after value rises and return cash covers that path.

If you already qualify on loan age and LTV, the request route is usually the cheaper door. If you hold lender-paid insurance or the loan is too young, the refinance is the realistic door.

What Decides the Outcome

Across the wholesale programs Lendmire places files with, the same few items decide whether a request works:

• Which value is used, original or current.
• Loan age against the two-year and five-year lines.
• Payment history in the lookback windows.
• Junior liens on the property.
• Occupancy and unit count.
• Whether the insurance is borrower-paid or lender-paid.
• What the valuation actually says.

Most failed requests fail on the first or the last. The borrower assumed today’s value counts under the federal law, or the valuation came back lighter than the neighbor’s listing price suggested. A listing price is not a valuation. Servicers order their own.

The practical habit that helps: before paying for anything, pull your original value, your current balance and your loan date. Do the two LTV calculations on paper. If the current-value number sits only a point or two under the line, the valuation is a gamble. If it sits well under, the fee is easy to justify. Ending insurance lowers the monthly housing cost, as the CFPB notes, and that can also help with qualifying for later financing. Weigh the savings against the valuation fee.

Key Terms Defined

Seasoning: How long your loan has been outstanding, which sets whether the 75% or 80% current-value line applies.

Original value: The value used at purchase for the federal cancellation test, not today’s market value.

Broker price opinion (BPO): A valuation by a real estate broker, often interior and exterior, used by servicers to confirm current value.

Borrower-paid mortgage insurance: Insurance you pay through your monthly payment, which can be cancelled when the tests are met.

Lender-paid mortgage insurance: Insurance the lender buys, which the borrower cannot cancel and which stays until payoff.

Junior lien: A second mortgage or HELOC recorded behind your first loan, which can block federal cancellation.

If you own your home with a conventional loan, or you are buying one and want to plan for the day the insurance comes off, Lendmire can help you compare the options and what each one asks of the file. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB, when can I remove PMI

2. Fannie Mae Servicing Guide B-8.1-04

3. Fannie Mae’s own materials

4. Fannie Mae consumer site, private mortgage insurance

5. Fannie Mae Servicing Guide F-1-02

6. Freddie Mac’s guide, section 8203.3

7. Fannie Mae’s servicing guide

8. Fannie Mae Lender Letter LL-2026-07

9. Orrick Infobytes

10. American Banker