Private Mortgage Insurance (PMI) is an insurance policy arranged by conventional lenders to protect themselves against financial loss if a borrower defaults on their mortgage.
PMI is mandatory on conventional mortgages whenever the Loan-to-Value (LTV) ratio exceeds 80% (i.e., when the down payment is less than 20%).
Under the federal Homeowners Protection Act of 1998 (HPA): - Borrower-Requested Cancellation: Borrowers have the right to request written PMI cancellation once the loan balance reaches 80% of the original property value. - Automatic Termination: The servicer is legally mandated to automatically cancel PMI once the principal balance is scheduled to reach 78% of the original value, provided the borrower is current on payments.