PMI is private mortgage insurance. This is a third party insurance policy to protect the bank from default on your loan. You are paying for this insurance policy for the bank. Anytime you have a loan that is at a loan to value (loan size divided by value) that is greater than 80% on a conforming loan (fannie mae or freddie mac...or a portfolio held loan), you will be required to have PMI. You will automatically be relieved of the PMI only when your loan balance drops to <78% of the original loan amount. You would have to check with your lender and PMI company (the lender can tell you who that is...typically Radian, PMI, MGIC, Genworth). There are ways to get the PMI removed earlier than waiting for the loan balance to get paid down. This is lender and PMI company specific. Some lenders/PMI companies will allow for you to get a new appraisal after 2 years of paying the premium, and if the loan to value is less than 80%, they will allow you to stop paying PMI. You would have to check with them. For example: you purchase a home for $200,000 you take a 90% loan to value loan at $180,000. You need to pay down the principal of the loan to $140,400 to have the PMI automatically stop being charged (78% of 180,000). Where the housing market is now, (very low), we are all assuming it will rebound over the next two years. Depending on the rate of appreciation, you definitely would want to track the value after two years and entertain the cost of getting a new appraisal done (typically $350 - 450).
FHA also has mortgage insurance, but it is charged on all loans regardless of loan to value, except if you take a loan term of <=15 years with the loan to value that is 80% or less. Please keep in mind that you still need to pay FHA MIP (mortgage insurance premium) if you take a 30 year loan at ANY loan to value...even if it is less than 80%...dissimilar to conventional where you don't pay PMI if you take a loan at <=80% loan to value. With the FHA MIP, you will need to pay the premium for 5 full years AND the balance is 78% or less of the original appraised value or sales price, whicever is less. There are some exceptions to this with FHA. If you have a loan to value of <=90% AND have a term that is <=15years, the FHA MIP will be cancelled when the loan balance is 78% of the original appraised value or original sales price, whichever is less and you don't need to wait 5 years.
Best thing to do is to call your servicer, the bank that you pay monthly and ask them what their policies are regarding the rempval of PMI.
Good luck. If you or any friends, family or co-workers are looking to refinance or purchase, I specialize in the Floridain and Californian markets. Please refer them over to me if you find my inforamtion helpful.
Co-Owner/Licensed Mortgage Consultant
Primary Mortgage Group