Three Numbers Decide How Long You Pay PMI: 80, 80, and 78
Three numbers decide how long you pay mortgage insurance: 80, 80, and 78. Most homeowners who bought with less than 20% down never hear them again after closing. Helen is a good example of how that plays out.
Helen's situation
Helen is a fictional, illustrative homeowner near James Island, SC. She is not a real client. Her story is a common situation. She bought with less than 20% down on a conventional loan, and every month a line item for private mortgage insurance, or PMI, comes along with her payment. Nobody ever told her it could end. She assumed it was part of the loan until she sold or refinanced.
That assumption is the thing most people get wrong. PMI is not permanent on a conventional loan. There are rules for when it applies and when it stops.
What the rule says
The rule comes from the Fannie Mae Selling Guide, B7-1-02. Here it is, word for word:
"Private mortgage insurance is required when the LTV exceeds 80%. PMI can be canceled when the LTV reaches 80% based on the original value and the loan is current. PMI automatically terminates at 78% LTV."
That is three thresholds, and they map directly to the three numbers.
The first 80: when PMI is required
LTV means loan-to-value. It compares what you owe to the value of the home. When you put less than 20% down, your LTV starts above 80%, and that is when PMI is required. It is the reason Helen has it.
The second 80: when you can ask to cancel
The guide says PMI can be canceled when the LTV reaches 80% based on the original value, and the loan is current. Two pieces matter here.
First, the measurement is based on the original value. Second, the loan has to be current, which means payments are up to date.
Notice the word can. Cancellation at 80% is something you can request. It is not described as happening on its own. That is why this middle number is the one people miss. If Helen never asks, she may keep paying.
The 78: when it ends automatically
The last number is the safety net. The guide says PMI automatically terminates at 78% LTV. You do not have to do anything for that one. But the gap between 80 and 78 is a stretch where Helen could be paying for coverage she is entitled to ask to end.
What Helen does about it
Helen does not wait, and she does not guess. She puts a request in writing to her servicer, the company she sends her mortgage payment to. Here is the message:
"I'd like to request cancellation of my private mortgage insurance. What is my LTV based on the original value, and what do you need from me to cancel it?"
That message does three things. It formally requests cancellation. It asks the servicer to show the LTV math using the original value, which is the measure the guide names. And it asks what they need from her, so she gets the requirements instead of a vague no.
Writing it down matters because you have a record of when you asked and what they answered.
How to use this today
If you bought with less than 20% down on a conventional loan, here is your short list:
- Find your original value and your current loan balance.
- Confirm your loan is current.
- Send the written request above to your servicer.
- Keep a copy of what you sent and what they send back.
If you are not sure where you stand, or you have questions about what your servicer tells you, I can help you sort it out. I find the path.
Call me, Jason Sharon, at 843-LOW-RATE.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: Three Numbers Decide How Long You Pay PMI
