What percentage threshold for a loan's original value must be reached for PMI to be automatically terminated according to the law?

To understand why the correct answer is 78%, it's important to consider the rules governing Private Mortgage Insurance (PMI) termination as mandated by the Homeowners Protection Act. Under this legislation, PMI is automatically terminated when the borrower reaches a threshold of 78% of the original appraised value of the home.

This means that once the homeowner has paid down their mortgage balance such that it is 78% of the initial value of the property, they are entitled to have the PMI removed without needing to request it. This rule is designed to protect homeowners from unnecessary insurance costs once they have built sufficient equity in their home.

Reach this percentage primarily occurs through making regular payments on the mortgage and benefiting from any appreciation in property value, allowing homeowners to maintain their financial health. Additionally, it reflects a broader context of supporting homeowner equity and reducing the financial burden.

Other percentages listed, such as 70%, 75%, and 80%, do not align with the established guidelines for PMI termination. Those figures do not trigger the automatic PMI removal condition, meaning that the correct understanding of when PMI ends is critical for homeowners to ensure they are not overpaying on their mortgage.