In what scenario will a lender be required to terminate private mortgage insurance?

A lender is required to terminate private mortgage insurance (PMI) when the loan balance is reduced to 78% of the home's original value. This requirement is established by the Homeowners Protection Act, which mandates that lenders automatically terminate PMI when the equity in the home reaches 22%, assuming the borrower is current on their mortgage payments. The idea behind this rule is that as a homeowner pays down their mortgage and as the value of the property may increase, the risk to the lender diminishes. Therefore, once the remaining loan amount reaches 78% of the original value of the home, the lender is obligated to remove the PMI, making it more financially feasible for the borrower.

This process is important because PMI is an additional cost incurred by borrowers who cannot put down a full 20% on their home purchase, and removing it can lead to significant savings over time.