When does Automatic PMI Cancellation occur?

• A. Automatically drops when loan reaches 78% LTV based on original purchase price
• B. Automatically drops at 70% LTV
• C. Automatically drops at 85% LTV
• D. Does not automatically cancel

Answer: (A)

Automatic PMI cancellation happens when the loan-to-value ratio reaches 78% of the property's original value, and the borrower is current on payments with no default. This rule, set by the Homeowners Protection Act for conventional loans, means PMI is dropped automatically once equity hits that 22% threshold based on the original purchase price, not on a current appraisal. The other options don’t fit because 70% and 85% thresholds aren’t the automatic cancellation trigger, and PMI does have an automatic termination at 78% (so saying it never cancels isn’t correct). (Note: you can often request cancellation earlier, at 80% or less based on current value, but automatic cancellation occurs at 78%.)