How to Calculate Equity to Remove PMI: 80% and 78% Thresholds

To figure out how to calculate equity to remove PMI, divide your current mortgage balance by your property’s value and multiply by 100. That gives you your loan-to-value (LTV) ratio; your equity is 100% minus that number. Once LTV reaches 80% (equity of 20%), federal law lets you ask your servicer to cancel private mortgage insurance. The complication is which property value belongs in the denominator, because the answer depends on which removal rule you’re using.

The LTV Formula, Worked Out

Pull your current mortgage balance from your monthly statement or your servicer’s online portal. Divide it by the property value. Multiply by 100.

Say you owe $200,000 on a home valued at $300,000. The math: 200,000 ÷ 300,000 = 0.6667, or 66.7% LTV. Your equity is the mirror image, 33.3%. That’s comfortably past the 20% threshold.

The formula is the easy part. The hard part is picking the right property value, because federal law and investor guidelines don’t always use the same figure, and the wrong one will produce a number your servicer refuses to work with.

Original Value vs. Current Value

Under the Homeowners Protection Act (HPA), the thresholds for PMI cancellation and automatic termination are measured against the original value of the property. For most borrowers that means the lesser of the purchase price or the appraised value at closing. If you paid $350,000 for a home that appraised at $345,000, your original value is $345,000, and every HPA calculation uses that number no matter what the home is worth today.

This is where appreciating markets create friction. Your home might be worth far more than when you bought it, but the HPA’s automatic triggers don’t care. Current market value only comes into play under a separate set of rules with stricter equity requirements and a waiting period, covered further down. So before you run the numbers, decide which path you’re on: the HPA path uses original value, and the current-value path uses a fresh appraisal.

The Three Federal Triggers for Dropping PMI

The HPA creates three ways to get rid of PMI on a conventional loan originated after July 29, 1999. Each uses the same LTV math against original value, but the threshold and conditions differ.

80% LTV: Borrower-Requested Cancellation

Once your balance reaches 80% of original value, through scheduled payments or extra payments you’ve made along the way, you can ask the servicer to cancel.¹ This is the earliest point the law lets you act, but all four of these have to be true:

You submit the request in writing.
Your payment history is good: no payment 30 or more days late in the past 12 months, and no payment 60 or more days late in the 12 months before that.
You’re current on the loan when you ask.
You can show the property hasn’t lost value since closing (if the lender requires it), and you certify there are no second liens on the home.²

That last one catches people. If you took out a home equity loan or HELOC after buying, the servicer can deny your request even if your first mortgage is well below 80% of original value.³ You’d need to pay off or subordinate that second lien first.

78% LTV: Automatic Termination

If you never ask, the servicer must terminate PMI automatically on the date your balance is scheduled to reach 78% of original value under the original amortization schedule. The word “scheduled” matters. Extra payments that got you to 78% ahead of time don’t move this date up on their own; the automatic trigger follows the original payment timeline, not your actual balance.¹ You do have to be current on payments when the scheduled date arrives. The good-payment-history test and the no-second-lien rule don’t apply.

This is why the 80% request matters. On a 30-year loan with only minimum payments, the gap between hitting 80% and 78% on the amortization schedule can be a year or more of PMI premiums you didn’t need to pay.

Midpoint: Final Termination Regardless of LTV

If PMI hasn’t ended by the midpoint of your amortization period, the servicer must drop it. For a 30-year mortgage, that’s year 15; for a 15-year mortgage, year 7.5. The only condition is that you’re current.² This mostly matters for adjustable-rate loans where negative amortization could otherwise keep the balance above 78% for a long time.

Using Current Market Value Instead

Because the HPA uses original value, borrowers in fast-appreciating markets can’t get credit under the statute alone for how much their home is now worth. Investor guidelines fill that gap. For loans owned by Fannie Mae, servicers can terminate PMI based on the current appraised value, but the LTV bar is higher and there’s a waiting period.

Seasoning tiers run like this:⁴

Two to five years after origination, your LTV based on current appraised value must be 75% or less (25% equity).
More than five years after origination, your LTV based on current value must be 80% or less (the standard 20% equity threshold).
Less than two years, only if you’ve made substantial improvements that increased the home’s value. Your LTV based on current value must then be 80% or less.

Not every project qualifies for that early exception. Fannie Mae separates improvements from routine upkeep. Kitchen or bathroom remodels, added square footage, and similar work that boosts marketability and extends the home’s useful life count. Replacing a water heater or repainting doesn’t.⁴ Expect to document the work.

How to Actually Submit the Request

Once your numbers qualify, the process is administrative. A few pieces to know going in.

The Written Request

Send a letter to your servicer. Include your loan number, state that you believe you’ve reached the equity threshold, and say whether you’re basing the request on original value (HPA) or current value (investor rules). No specific format is required, but putting it in writing is not optional under the statute.²

Property Valuation

The servicer will want to confirm the home’s worth. For Fannie Mae loans, the servicer decides whether an automated valuation model (AVM), a broker price opinion (BPO), or a full appraisal is appropriate for your area.⁵ If you don’t like the AVM result, you can pay for a BPO or a full appraisal. A single-family appraisal generally runs $300 to $600.

The 30-Day Response Window

Your servicer has 30 days from receiving your request and any required evidence to respond. If you qualify, PMI collection has to stop within 30 days and you get written confirmation. If you’re denied, the servicer must explain why in writing within the same window and share appraisal results if an appraisal was used.⁶

Escrow Refund and Payment Adjustment

PMI premiums usually sit inside your escrow payment, so your monthly bill should drop once coverage ends. Any unearned premiums have to come back to you within 45 days of the cancellation date.⁷ The servicer runs a new escrow analysis to reset the monthly payment, but that may wait until the next annual review. If your payment hasn’t dropped after a couple of months, call and ask for an early escrow reanalysis.

FHA and VA Loans Don’t Follow These Rules

Everything above is for conventional loans. The HPA doesn’t apply to FHA or VA loans at all.⁶

FHA loans carry a mortgage insurance premium (MIP) with its own terms. On FHA loans originated after June 3, 2013 with a down payment under 10%, MIP lasts the life of the loan: no equity threshold ends it. The only ways out are to refinance into a conventional loan, sell, or pay the mortgage off. With 10% or more down after that date, MIP falls off after 11 years.

VA loans don’t charge monthly mortgage insurance. Most VA borrowers pay a one-time funding fee at closing, between 1.25% and 3.3% of the loan amount depending on down payment and prior use of the benefit.⁸ There’s no recurring premium to cancel.

When Refinancing Makes More Sense

If your home has appreciated a lot but you don’t meet the seasoning rules, or your current loan’s situation makes cancellation messy, refinancing into a new conventional loan is another route. The new loan has to close at 80% LTV or less on a fresh appraisal. Starting with 20% or more equity means PMI isn’t required at all.

Refinancing has closing costs, though. Compare the total cost against the PMI you’d save over the time you plan to stay in the home. If cancellation on your existing loan is only a few months away, refinancing to shed PMI rarely pencils out.

1
Office of the Law Revision Counsel. 12 USC 4901 – Definitions
2
Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
3
Consumer Financial Protection Bureau. Compliance Bulletin: Private Mortgage Insurance Cancellation and Termination
4
Fannie Mae. Termination of Conventional Mortgage Insurance
5
Fannie Mae. Borrower-Initiated MI Termination Requests Using SMDU
6
Consumer Financial Protection Bureau. Homeowners Protection Act (PMI Cancellation Act) Procedures
7
National Credit Union Administration. Homeowners Protection Act (PMI Cancellation Act)
8
Veterans Affairs. VA Funding Fee and Loan Closing Costs