To cancel PMI, what must the principal balance of the loan be as a percentage of the original value?

To cancel Private Mortgage Insurance (PMI), the principal balance of the loan must be at or below 80 percent of the original value of the property. This threshold is established to protect lenders in case the borrower defaults on the loan. Once the borrower's equity reaches at least 20 percent, they are eligible to request the cancellation of PMI.

This 80 percent benchmark means that if the remaining loan balance is equal to or less than 80 percent of the home's original value, the borrower can initiate the process to have PMI removed. It serves as an important safeguard for both borrowers, who save on monthly mortgage insurance premiums, and lenders, who have reduced risk in lending.

The other percentages listed do not align with the PMI cancellation requirements set forth by guidelines for conventional loans. For example, while 78 percent is often mentioned in relation to automatic termination of PMI, it does not apply for the borrower to proactively cancel PMI based on their request. Likewise, other options, such as 82 percent and 76 percent, do not meet the established thresholds for PMI cancellation either.