To calculate the LTV ratio, divide $258,000 by $300,000 to get 86. Expressed as a percentage, this is 86%. The LTV ratio is 86%.
PMI is generally required for borrowers who take out a conventional mortgage with a loan-to-value ratio of 81% or higher.
In this example, the lender will charge PMI until you qualify for auto-cancellation at 78% LTV or request PMI termination at 80% LTV.
There’s more than one route to cancelling PMI. Next, we’ll go further in depth on your main PMI cancellation options.
1. You qualify for auto-cancellation with a 78% LTV.
Under rules outlined by the Homeowners Protection Act (PMI Cancellation Act) of 1998 or HOPA, homeowners have the right to have their PMI removed automatically on the date that their principal balance is scheduled to reach 78% of the original value.
On a home you bought for $300,000, you would qualify for auto-cancellation when your mortgage balance hit $234,000. (Divide $234,000 by $300,000 to get 78% LTV).
A homeowner must be current on their payments for this automatic removal to occur.