Finance
The Homeowners Protection Act (PMI Cancellation Act) requires lenders to:
ACancel PMI immediately upon the borrower's request at any LTV
BAutomatically cancel PMI when the LTV reaches 78% based on original amortization✓ Correct
CProvide PMI on all residential mortgages regardless of down payment
DDisclose PMI costs only at loan origination
Explanation
The Homeowners Protection Act requires automatic cancellation of PMI when the loan balance reaches 78% of the original property value based on the original amortization schedule. Borrowers may also request cancellation when they believe the LTV has reached 80%.
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Key Terms to Know
Private Mortgage Insurance (PMI)
Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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