Private Mortgage Insurance (PMI) is a critical component for many homeowners who finance more than 80% of their home’s value. Understanding how PMI works and the role appraisals play in its calculation can save homeowners significant amounts of money over the life of a mortgage. This blog explores the intricacies of PMI and how an appraisal can affect its requirements and costs, providing new insights for prospective and current homeowners.

1. The Basics of PMI

PMI is designed to protect lenders from the risk of default and foreclosure. It’s typically required when homebuyers make a down payment of less than 20% of the home’s purchase price. The cost of PMI varies based on the down payment amount and the borrower’s credit score but can range from 0.5% to 1.5% of the original loan amount annually.

2. Appraisal and PMI Adjustment

An appraisal determines the current market value of a property. If an appraisal shows that the home’s value has increased since the purchase, homeowners may have the opportunity to reduce or even cancel their PMI. This is because the increase in home value can shift the loan-to-value ratio (LTV), potentially bringing it below the 80% threshold where PMI is no longer required.

3. Refinancing to Eliminate PMI

Homeowners often consider refinancing their mortgage to reduce their PMI costs. A new appraisal during the refinancing process could demonstrate a lower LTV ratio, particularly in a rising real estate market. This could either reduce the PMI payments or eliminate the need for PMI altogether, resulting in substantial savings.

4. Market Conditions and Their Effects on Appraisal

The local real estate market plays a crucial role in the appraisal process. In a booming market, property values may increase faster, which can help homeowners shed their PMI sooner than anticipated. Conversely, in a declining market, maintaining PMI could be inevitable for a longer period.


Understanding PMI and the impact of property appraisals can lead to better financial decisions and savings for homeowners. By keeping informed about market trends and considering the potential benefits of a new appraisal, homeowners can manage or even eliminate PMI costs effectively. Regular reviews of your property’s value and mortgage terms are advisable to ensure you are not overpaying for insurance that could potentially be adjusted or removed.