When can PMI be canceled on a conventional loan?

• A. PMI is automatically canceled when the loan reaches 90% LTV; borrower must be current.
• B. PMI can be canceled automatically at 70% LTV.
• C. PMI is canceled automatically at 78% LTV based on original value and borrower is current; borrower-initiated cancellation at 80% LTV with a good payment history.
• D. PMI can be canceled only after five years regardless of LTV.

Answer: (C)

PMI cancellation on a conventional loan depends on how much of the home you own versus what you owe (LTV) and how you’ve been making payments. Automatic cancellation happens when the loan-to-value reaches 78% based on the original property value and you’re current on the mortgage. That means you’ve paid down enough principal that you now owe only 78% of the original price, and you haven’t fallen behind.

You can also request cancellation yourself once the LTV reaches 80% (still based on the original value) as long as you have a good payment history. If you’ve kept up payments and the borrower meets the lender’s requirements, this voluntary step can remove PMI before it would automatically cancel.

Options that claim automatic cancellation at 90% or 70%, or a universal five-year rule, don’t align with how conventional loans handle PMI cancellation. The critical factors are LTV thresholds (78% automatic, 80% borrower-initiated) and maintaining a solid payment history.