The 80 Percent Rule and the 78 Percent Rule Explained

These two numbers come up in every conversation about PMI cancellation. They are related, but they are not the same thing.

The 80 percent rule is about your request. When your loan balance reaches 80 percent of your home's original value, you can ask your servicer to cancel PMI. The word to focus on is original. The calculation is based on the value of the home at the time the loan was made, not the value today. If you bought for $400,000 and put 10 percent down, your original loan was $360,000. When your balance reaches $320,000, that is 80 percent of the original value, and you can request cancellation.

The 78 percent rule is about automatic termination. When your loan balance is scheduled to reach 78 percent of the original value, the servicer has to cancel PMI on their own, provided you are current on payments. On that same $360,000 loan, that is a balance of $280,800. When the amortization schedule says you will hit that number, PMI must end.

The gap between 80 and 78 is small in percentage terms but large in time. On a 30 year loan, it can take about seven months to go from one to the other with normal payments. That is seven months of PMI payments you could have stopped if you had requested cancellation at 80 instead of waiting for the servicer to act at 78.

There is a third number that matters. Some servicers will consider cancellation based on your current home value, not the original value, once your balance reaches 75 percent of the original value. That is not a legal requirement. It is a servicer policy that some lenders offer. If your home has appreciated significantly, this can let you cancel PMI years earlier than the 78 percent rule would allow. The catch is that you usually have to pay for an appraisal or a broker price opinion to use it.

The most common mistake homeowners make is waiting for the servicer to act. Servicers are not required to remind you that you have crossed 80 percent. They are required to automatically cancel at 78 percent. If you want the earlier cancellation, you have to ask.

See if your loan balance qualifies you to cancel PMI now.