United States
Hong KongPrivate mortgage insurance rules
Borrower-paid private mortgage insurance may be canceled on request at 80 percent loan-to-value and terminates automatically at 78 percent, under the Homeowners Protection Act. These rules do not apply to FHA premiums.
Two thresholds, two different mechanisms, one statute. And a hard boundary around what it applies to.
The two numbers
At 80 percent loan-to-value the borrower may request cancellation. The lender is not obliged to act without the request, and may impose conditions such as a good payment history and a current value.
At 78 percent it terminates automatically. No request needed, provided the borrower is current on payments.
The midpoint rule
If the loan has not reached 78 percent by the midpoint of its amortization schedule, the insurance terminates anyway at that midpoint, provided the borrower is current.
It exists for loans amortizing slowly. It is asked rarely and it is a good discriminator when it appears.
The Homeowners Protection Act governs private mortgage insurance on conventional loans. FHA annual premiums follow FHA rules and often run for the life of the loan. Applying 78 percent to an FHA scenario is the classic error.
Which value is used
The original value of the property - the lesser of the purchase price and the original appraised value - unless the loan is being evaluated on a current appraisal under the lender's own policy.
So market appreciation alone does not automatically reach the thresholds under the statutory rules.
Lender-paid mortgage insurance
A different arrangement, where the lender pays the premium and recovers it through a higher interest rate.
It does not cancel at 78 percent, because there is no borrower-paid premium to cancel. The higher rate stays for the life of the loan, which is the trade the borrower made.
Common questions
When does private mortgage insurance cancel?
On request at 80 percent loan-to-value, and automatically at 78 percent, under the Homeowners Protection Act.
What is the midpoint rule?
If 78 percent has not been reached by the midpoint of the amortization schedule, the insurance terminates then, provided the borrower is current.
Does this apply to FHA loans?
No. FHA annual premiums follow FHA rules and often run for the life of the loan.
Does appreciation cancel PMI?
Not under the statutory rules, which use the original value. A lender may allow a new appraisal under its own policy.
Does lender-paid mortgage insurance cancel?
No. There is no borrower premium to cancel, and the higher rate remains for the life of the loan.