How to calculate PMI cancellation

For this scenario, we will assume the loan meets the HPA requirements. In other words, a residential mortgage transaction for a single family residence purchased after July 29, 1999, serves as the borrower’s primary residence, and has borrower paid PMI.

Appraisal value: $250,000

Sales Prices: $260,000

Loan amount: $220,000

Mortgage term: 30 years

Interest rate: 4.5%

LTV: Loan to value ratio: 220,000/250,000 = 88%

“Original value” generally means the lesser of the sales price of the secured property, as reflected in the contract, or the appraised value at the time of loan consummation.

Since the LTV is more than 80%, then the PMI will be charged.

Automatic cancellation: .78 * 250,000 = $195,000.

In this scenario, automatic termination of the PMI should occur on the date when principal balance reaches $195,000 on the amortization schedule, as long as the borrower is current on his loan payments. This is the date the loan is first scheduled to reach 78% of the original value of the property.

Borrower requested cancellation: .80 * 250,000 = $200,000.

As long as the borrower is current, and meets all the creditor’s previously agreed upon requirements for cancellation, the termination date for the borrower requested termination would be the date the principal balance reaches $200,000 in this specific scenario. The borrower is permitted to make extra payments in order to reach 80% of the original value sooner.