I am applying for a no cash out refinancing with a loan-to-value ratio of 85%. Do I have to pay Private Mortgage Insurance (PMI)?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

For most conventional mortgages, you are required to pay private mortgage insurance (PMI) if your loan-to-value (LTV) ratio is greater than 80%. Your LTV ratio equals the amount of your mortgage divided by the fair market value of the property being financed. For example, if you apply to refinance a $85,000 mortgage on a home valued at $100,000 according to an appraisal report, the LTV ratio is 85%.

The PMI requirement for conventional mortgages applies if your LTV ratio exceeds 80% regardless of if you are getting a mortgage to buy a home or refinancing an existing loan. If you are refinancing, the PMI requirement applies both if you are taking cash out when you refinance or if you do a rate and term refinance and receive no proceeds from the loan, although the PMI rate is higher for a cash out refinance.

PMI is an ongoing monthly fee you pay in addition to your monthly mortgage payment. The amount of PMI you pay depends on your LTV ratio, credit score, type of mortgage, the length of your loan and other factors.

Review What is PMI and When Do I Need to Pay It?

Some lenders attempt to charge a higher mortgage rate instead of requiring you to pay PMI separately. This is called lender paid PMI and usually costs you more in the long run because you pay the higher rate as long as you have your mortgage as compared to borrower-paid PMI which is cancellable when your LTV ratio reaches a certain level, usually 78% to 80%.

You can also request to have borrower-paid PMI removed if your property value increases due to home improvements or higher property values in your neighborhood. Please note that you may need to wait a certain period of time before you apply to have PMI removed based on your current property value as opposed to your original property value when you obtained your mortgage.

Are there mortgage programs that do not charge PMI if your LTV ratio is above 80%?

There are a small number of lenders and loan programs that do not require you to pay PMI even if your LTV ratio is greater than 80%. These are typically low and no down payment programs designed for home buyers but some also permit refinances.

The Citibank HomeRun program allows refinances and does not require PMI. The program, however, applies borrower income limits and loan limits that restrict the number of people eligible for the program or the mortgage amount you can qualify for.

Review our Citibank HomeRun Mortgage Program Guide

The VA mortgage program does not charge an ongoing monthly mortgage insurance fee but you are required to pay a one-time VA funding fee when you mortgage closes. Plus only active military personnel and veterans are eligible for the VA program.

Review our VA Mortgage Guide

In short, your options for refinancing your mortgage and not paying PMI if your LTV ratio is above 80% are relatively limited. We recommend that you contact multiple lenders in the table below and review mortgage terms based on your specific LTV ratio and other factors.

When you compare lenders make sure to consider your total monthly payment including PMI. Shopping for your mortgage enables you to find the lowest payment and save money on your loan.

Sources

"B7-1-02, Mortgage Insurance Coverage Requirements."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, August 7 2019.  Web.

"B2-1.3-03, Cash-Out Refinance Transactions."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, July 3 2019.  Web.