When must both PMI and MIP be discontinued?

The correct answer is found in the guideline that both Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP) must typically be discontinued when the loan balance is below 78% of the original value of the home. This is an important protection for borrowers, as it indicates that they have gained enough equity in their home such that the lender no longer requires mortgage insurance to mitigate risk.

When the loan balance reaches this threshold, borrowers are entitled to request the cancellation of PMI or MIP, provided they are up to date on their payments. This rule applies to conventional loans with PMI, as well as to government-backed loans that require MIP. The requirement to cancel insurance coverage at this equity level is established to ensure that borrowers are not paying additional insurance premiums unnecessarily when they have built significant equity in their property.

In many cases, lenders are mandated to automatically terminate PMI when the loan balance is scheduled to fall to 78% of the original value due to amortization, assuming the borrower is current with payments. This reflects a significant milestone in the life of the loan, indicating a lower risk for the lender.

By contrast, PMI and MIP are not automatically discontinued when the loan balance exceeds 80% of the original value, when the