Private mortgage insurance protects the lender, not you, and you pay for it. It is usually required when a conventional loan starts above 80% of the home’s value. The useful question is when it stops.
There are two answers, they are different rules, and the gap between them is often a year or more of premiums.
The two thresholds
80% loan-to-value: you may request cancellation. Once the balance reaches 80% of the original value, you have a right to ask for the insurance to be removed. It is a request, with conditions: generally it must be in writing, you must be current on payments, and the servicer may require evidence that the property value has not declined and that there is no second lien.
78% loan-to-value: the servicer must terminate it. At 78%, automatic termination applies. No request, no paperwork, no conditions beyond being current on the loan.
Both come from the Homeowners Protection Act of 1998, 12 USC 4901 and following. The Consumer Financial Protection Bureau sets out the practical version in its answer on when you can remove PMI.
The detail that costs people money
Both thresholds are measured against the original value: the lesser of the purchase price and the appraised value at the time the loan was made.
Not what the home is worth today. Not what a neighbour’s house just sold for.
This is the single most common misunderstanding about PMI, and it runs in the expensive direction. A homeowner who has watched local prices rise 30% may believe they are well under 80% and that the insurance should have stopped. For the purposes of the statutory right, nothing has changed, because the denominator is fixed at origination.
Many servicers will consider a new appraisal under their own policy, and that can get PMI removed earlier. That is a commercial arrangement with your servicer, at your cost, and it is separate from the rights above.
Working out the dates
Both thresholds are points on your amortisation schedule, so both can be computed exactly.
Take a home bought for $400,000 with a loan of $380,000 at 6.5% over 30 years. The starting loan-to-value is:
380,000 / 400,000 = 95%
The 80% threshold is reached when the balance falls to:
0.80 x 400,000 = $320,000
and the 78% threshold when it falls to:
0.78 x 400,000 = $312,000
From there it is a matter of reading down the schedule to the month each balance is crossed. Our mortgage insurance calculator does exactly that and reports both months, along with the total premiums paid between them, because that figure is what a cancellation request is worth.
Extra payments move both dates earlier, because the thresholds track the balance, so paying down faster brings both months forward.
What a premium actually costs
PMI is normally quoted as an annual percentage of the loan amount, commonly between 0.3% and 1.5% depending on credit and down payment. The monthly cost is that annual figure divided by twelve:
380,000 x 0.005 / 12 = $158.33 a month
at a rate of 0.5%. Over the years between 95% and 78% loan-to-value, that adds up to a figure worth knowing before deciding whether to make an extra payment or request cancellation at 80%.
What this page does not do
It does not tell you whether to put more money down, pay extra to reach a threshold sooner, or pay for an appraisal. Those depend on what else the money could do and on facts about your situation that a calculator cannot see.
What it does is give you the two dates, the premiums between them, and the rule each one comes from, so the decision rests on arithmetic.
One caveat worth repeating: this applies to conventional loans. FHA mortgage insurance is a different programme under different rules, and on most modern FHA loans the premium does not come off at all.
Questions
- What is the difference between the 80% and 78% thresholds?
- At 80% loan-to-value you may request cancellation, and the request must be in writing and you must be current on payments. At 78% the servicer must terminate it automatically, with no request from you. The first is a right to ask, the second is an obligation on them.
- Is the threshold based on what my home is worth now?
- No. Under the Homeowners Protection Act both thresholds are measured against the original value, meaning the lesser of the purchase price and the appraised value when the loan was made. Rising home prices do not move these dates. Some servicers will consider a new appraisal under their own policy, but that is separate from the statutory right.
- Does PMI come off automatically if I pay extra?
- Extra payments reach 78% sooner, and the automatic termination follows the amortisation schedule rather than the calendar, so the date moves with the balance. Reaching the threshold ahead of schedule through extra payments generally still requires you to be current on the loan.
- Does FHA mortgage insurance work the same way?
- No. FHA loans carry a mortgage insurance premium under FHA rules, not PMI under the Homeowners Protection Act, and on most modern FHA loans the premium lasts the life of the loan regardless of the balance. The thresholds described here apply to conventional loans.