Mortgage Loan Originator (MLO) Licensing Practice Test

Private Mortgage Insurance (PMI) can be canceled when the loan reaches 80% or 78% loan-to-value (LTV). This is based on federal regulations and guidelines which stipulate that once the borrower has paid down the mortgage balance to 80% of the original value of the home, they are entitled to request cancellation of PMI. Additionally, the lender must automatically cancel PMI when the LTV ratio reaches 78%, as long as the borrower is current with their payments.

These thresholds are designed to protect borrowers from unnecessary insurance costs once they have gained equity in their homes. Therefore, understanding the LTV ratio is crucial for borrowers to determine when they can stop paying for PMI, leading to significant cost savings over the life of the loan.