Under what condition can a borrower usually cancel private mortgage insurance (PMI)?

A borrower can usually cancel private mortgage insurance (PMI) when the loan-to-value ratio reaches 80%. This ratio is a measure of the amount of the mortgage compared to the appraised value of the home. When a borrower has paid down the mortgage to the point that they owe 80% or less of the home's current value, they have significant equity in the property.

This condition is significant because PMI is designed to protect lenders against the risk of default on loans where borrowers have less than 20% equity. Once a borrower reaches that 80% threshold, the risk to the lender is diminished, allowing for PMI cancellation to occur. The borrower may request cancellation at this point, and lenders are often required to remove PMI when certain conditions about equity are met, following the guidelines set forth by the Homeowners Protection Act.

Other options, such as a decrease in market value or a set time frame after the first year of payments, do not inherently qualify for PMI cancellation. Additionally, refinancing can result in the need for new PMI depending on the circumstances of the new loan agreement, but it is not a direct condition for canceling existing PMI.