Recasting and PMI Removal: Lower Your Payment Twice

Key takeaways

A recast doesn't remove PMI on its own, but the same lump sum can bring your balance to 80% of the original value so you can ask to cancel it.
In the example, paying about $31,700 down, recasting, and dropping PMI cuts the monthly cost by about $355.
FHA mortgage insurance follows different rules, and FHA loans generally can't be recast.

If you put less than 20% down on a conventional loan, you're probably paying private mortgage insurance (PMI) every month. A lump-sum payment can do two things at once: bring your balance down far enough to ask for PMI to be cancelled, and, with a recast, lower your principal and interest payment too. Together, that can cut your monthly cost more than either one on its own.

Recasting and PMI are separate steps

A recast doesn't remove PMI by itself. It only re-amortizes your loan so the principal and interest payment drops. PMI cancellation is a separate request, and it depends on how your balance compares to your home's value. The lump sum is what connects them: one payment can lower your balance enough for both.

That means you usually need to ask your servicer for two things:

A recast, to lower your required principal and interest payment.
PMI cancellation, once your balance is low enough.

When PMI can come off

For most conventional loans made since July 1999, the federal Homeowners Protection Act sets out when PMI ends:

How it ends	When	Do extra payments count?
You request cancellation	Once your balance reaches 80% of the home's original value	Yes. You can get there early by paying down principal.
Automatic termination	When your balance is scheduled to reach 78% of the original value	No. It's based on the original payment schedule.
Final termination	At the midpoint of the loan term, such as year 15 of a 30-year loan	No

"Original value" is generally the lower of the purchase price or the appraised value when you bought. To request cancellation at 80%, you typically need to be current on your payments, have a good payment history, and may need to show that the home's value hasn't dropped and that there are no other loans against it. Your servicer can tell you exactly what it requires.

Some servicers also allow cancellation based on your home's current value, usually with a new appraisal and after the loan has been in place for a minimum period. If your home has gained value, that may get you there with a smaller lump sum. Ask your servicer whether it offers this.

An example

Say you bought a $400,000 home with 10% down. Your loan is $360,000 at 6.5% for 30 years, so your principal and interest payment is about $2,275. Your PMI is $150 a month. PMI costs vary widely by credit score, down payment, and lender, so this figure is only for illustration.

80% of the original value is $320,000. On the normal schedule, your balance wouldn't reach that until almost 8 years in, and PMI wouldn't end automatically (at 78%) until about 9 years in.

Now say that 2 years in, when you owe about $351,700, you put about $31,700 toward principal to bring the balance to $320,000. Then:

	Before	After paydown, recast, and PMI cancellation
Principal and interest	$2,275	$2,070
PMI	$150	$0
Total	$2,425	$2,070

That's about $355 a month less. About $205 comes from the recast and $150 from dropping PMI. Without the recast, you'd still drop the PMI, but your principal and interest payment would stay at $2,275 and the loan would be paid off sooner instead.

You can try your own numbers in the recast calculator. It shows principal and interest only, so subtract your PMI separately.

How to do it

Find your original value on your closing documents, and work out 80% of it.
Check your current balance on your latest statement. The difference is roughly the lump sum you'd need.
Call your servicer and ask what it requires for PMI cancellation, whether it allows cancellation based on current value, and whether your loan can be recast. See how to request a recast.
Make the principal payment, then submit the recast request and the PMI cancellation request, both in writing.
Check your statements to confirm the new principal and interest payment and that PMI has been removed.

FHA loans work differently

FHA loans have mortgage insurance premiums (MIP) instead of PMI, and the Homeowners Protection Act rules above don't apply. For most FHA loans taken out since mid-2013, MIP lasts for the life of the loan if you put down less than 10%, or for 11 years if you put down 10% or more. Paying down principal doesn't change that, and FHA loans generally can't be recast either.

The usual way to drop FHA mortgage insurance is to refinance into a conventional loan once you have enough equity. That means a new rate and closing costs, so compare carefully.

Frequently asked questions

Does a recast remove PMI?

Not on its own. The lump sum lowers your balance, which may let you request PMI cancellation, but cancellation is a separate request to your servicer.

Is it worth paying down a loan just to drop PMI?

Often, yes, because you stop paying PMI and save interest on the principal you paid off. Compare it with other uses for the money, as covered in is a recast worth it?

Will my lender cancel PMI automatically when I pay down to 80%?

Usually not. Automatic termination follows the original schedule to 78%. If you reach 80% early with extra payments, you need to ask.