At what point does federal law require private mortgage insurance (PMI) to be terminated?

Federal law mandates that private mortgage insurance (PMI) must be terminated when a borrower has accumulated 22% equity in the home based on the original value of the property at the time of purchase. This provision is part of the Homeowners Protection Act, which aims to protect borrowers from unnecessary PMI costs once they have built up sufficient equity.

This means that once the borrower’s equity reaches 22%, they can request the removal of PMI, and the lender must cancel it automatically when the equity reaches this threshold, assuming the loan is current. This equity is calculated on the initial purchase price or the appraised value at the start, not on any increases in home value that may occur afterward.

Therefore, understanding this threshold is crucial for homeowners in managing their finances, as it can lead to significant monthly savings by eliminating the PMI payments.