PMI on a $700,000 loan typically runs $290-$580 per month. After 5+ years of building equity through payments and San Diego appreciation, most buyers reach the point where refinancing or requesting a PMI cancellation could eliminate that cost. The catch: refinancing to drop PMI only makes sense in specific situations, and outside those, just requesting cancellation through your existing servicer is the smarter path. Here's how to figure out which option applies to you.

The two paths to drop PMI

Before refinancing, understand that you have a free option built into federal law. The Homeowners Protection Act of 1998 (HPA) gives every conventional borrower the right to PMI removal without refinancing.13 Two thresholds:

For most San Diego buyers, requesting cancellation at 80% LTV based on current appraised value (rather than original purchase price) is the fastest path. With San Diego appreciation since 2020-2022, many homeowners are below 80% current LTV well before the original-value calculation gets there.

The current-value path: not always honored

Federal law is clear on the original-value calculation. The current-value calculation is at the lender's discretion. Most major servicers will accept a current-value PMI cancellation if:

If your servicer accepts current-value cancellation, this is by far the cheapest option. Total cost: $500-$900 for the appraisal. Total monthly savings: typically $200-$500. Break-even is usually 1-3 months.

When refinancing makes sense instead

Refinancing to drop PMI only makes sense in three specific scenarios:

1. You're refinancing anyway

If rates have dropped enough that you're already considering a rate-and-term refinance, dropping PMI in the process is a free win. The refinance pays back its closing costs through monthly P&I savings; eliminating PMI is bonus money.

2. Your servicer refuses current-value cancellation

Some servicers strictly enforce the original-value calculation, especially on loans under 5 years old. If your servicer won't process a current-value request, refinancing into a new conventional loan with under 80% LTV based on the new appraisal eliminates PMI immediately.

3. You're dropping FHA mortgage insurance

This is the big one. FHA's MIP works very differently from conventional PMI:2

For FHA borrowers with under 10% original down payment, the only way to eliminate MIP is to refinance into a conventional loan. Given that FHA's annual MIP is typically 0.55% of the loan balance — about $367/month on an $800K loan — this can be one of the most lucrative refinances available, even at higher current rates.

The FHA-to-conventional refinance math

Worked example: Carlsbad homeowner who bought in 2021 for $750,000 with 5% down ($37,500), FHA loan of $712,500 at 3.5%. Current balance after 4 years: roughly $655,000. Current home value: $920,000 (San Diego appreciation). Current LTV: 71.2%.

Two paths:

Stay in FHA

Refinance to conventional at 6.23%

In this case, refinancing actually increases the monthly payment by $524 because the rate jump (3.5% to 6.23%) more than offsets the MIP elimination. Despite the $93K in MIP savings, the rate trade is unfavorable.

Compare this to a homeowner with a 7%+ FHA rate from 2023-2024. For them, refinancing both drops the rate AND eliminates MIP — typically saving $400-$600/month and earning back closing costs in 12-24 months.

The rule of thumb for FHA → conventional

Refinance from FHA to conventional only when the new rate is at or below your existing FHA rate, OR when MIP savings alone justify the closing costs. For homeowners with sub-4% FHA rates, the math almost never works to refinance — even with MIP savings, you're trading a low rate for a higher one. Better path: pay extra principal and request PMI removal once eligible (which doesn't apply to FHA loans with under 10% original down — meaning the only ways out are sale or refinance).

The current-value request: how to actually do it

If your servicer allows current-value cancellation and you've got the equity, the steps:

  1. Contact your servicer in writing requesting PMI cancellation based on current appraised value. Most servicers have a specific form or process; ask for it explicitly.
  2. Receive the servicer's appraisal requirements. Typically you must use an appraiser from their approved panel (you don't get to pick), and you pay the cost upfront.
  3. Wait for the appraisal. Typically 5-10 business days from order to delivery.
  4. Receive the determination. If LTV is at or below the threshold (typically 80% for loans 2-5 years old, sometimes 75% for newer loans), PMI is removed within 30 days.
  5. If the appraisal comes in too low, you've spent $500-$900 with no benefit. Request a "Reconsideration of Value" if you have grounds.

The risk: low appraisal

The single biggest risk in the current-value PMI request: the appraisal comes in lower than expected. San Diego homeowners who recently saw a neighbor's house sell for $1.2M sometimes assume their similar home will appraise at $1.2M too. Appraisers may use different comps, weight features differently, or be more conservative than recent sale prices suggest.

If you're confident your home is well above the LTV threshold (e.g., 65-70% based on conservative estimates), the appraisal risk is low. If you're right at the line, consider whether you'd rather wait another 12-18 months for additional principal paydown or appreciation to give yourself a margin.

The PMI types that aren't PMI

Worth mentioning what you can't refinance away:

The decision flow

  1. Are you on FHA with under 10% original down?
    • Yes → Only way out is refinance to conventional. Run rate-comparison math.
    • No → Continue.
  2. Are you on conventional with PMI?
    • Yes → Calculate current LTV. If ≤80%, request cancellation based on current value before considering refinance.
    • No → No PMI to drop; this article doesn't apply.
  3. Did your servicer refuse current-value cancellation?
    • Yes → Refinance to a new conventional loan at sub-80% LTV.
    • No → No refinance needed; keep your existing rate.

Run the math: refinance vs PMI cancellation request.

Open the calculator →

The honest read

Most homeowners who want to drop PMI don't need to refinance — they need to send a written request to their servicer. Federal law is on your side at 78% original-value LTV (automatic) and 80% (borrower-requested). The current-value path takes one appraisal and one letter, total cost under $1,000. Refinancing to drop PMI only makes sense if you're already refinancing anyway, your servicer refuses the cancellation request, or you're trapped on FHA's lifetime MIP. Don't let a refinance pitch from a lender quietly skip the much cheaper option you already have.

PMI cancellation procedures vary by servicer. Always confirm specific terms with your loan servicer in writing. Educational content only — not legal, tax, or financial advice.

References

  1. Consumer Financial Protection Bureau. (2012). Homeowners Protection Act (HPA or PMI Cancellation Act) examination procedures. Retrieved April 28, 2026, from https://www.consumerfinance.gov/compliance/supervision-examinations/homeowners-protection-act-hpa-or-pmi-cancellation-act-examination-procedures/
  2. U.S. Department of Housing and Urban Development. (n.d.). FHA mortgage insurance premium. Retrieved April 28, 2026, from https://www.hud.gov/program_offices/housing/sfh/ins/sfh203b
  3. Federal Reserve. (n.d.). Homeowners Protection Act of 1998, 12 U.S.C. §§ 4901-4910. Retrieved April 28, 2026, from https://www.federalreserve.gov/boarddocs/supmanual/cch/hpa.pdf