Business ElementaryPrivate Mortgage Insurance (PMI): When It Starts and When It Ends
The short answer: Private mortgage insurance (PMI) is insurance that protects the lender, not the buyer. Buyers typically pay for it on a conventional loan with a down payment of less than 20% of the purchase price (CFPB). Under the federal Homeowners Protection Act, a borrower can ask to cancel borrower-paid PMI when the loan is scheduled to reach 80% of the home's original value. The servicer must end it automatically at 78% if payments are current, and in any case by the month after the loan's midpoint (12 U.S.C. 4901, 4902).
The financing exam guide gives the 80/78 summary in one paragraph. This page covers the rest: who is covered, what "original value" means, refunds, and the exceptions buyers trip over. Start with financing questions on the NJ exam for the bigger outline.
This page explains federal law and CFPB guidance. It is not lending advice. Borrowers should confirm their own loan's terms with their servicer.
Why do lenders require PMI?
PMI insures the lender against loss if a borrower stops paying. If you fall behind, PMI does not protect you, and you can still lose the home to foreclosure. It is arranged by the lender and provided by private insurance companies. The requirement usually also applies when refinancing a conventional loan with less than 20% equity (CFPB).
PMI also appears on PSI's New Jersey exam outline, listed with points, LTV, interest and PITI under Financing's basic concepts (PSI bulletin).
How is PMI paid?
The CFPB describes three common setups (CFPB):
- Monthly premium added to the mortgage payment. It shows on page 1 of the Loan Estimate and Closing Disclosure (Projected Payments).
- One-time up-front premium paid at closing, shown on page 2, section B. If you move or refinance, you might not get a refund.
- Both an up-front and a monthly premium.
Some lenders offer low-down-payment conventional loans without PMI in exchange for a higher interest rate. Closing-statement vocabulary is in closing cost terms for NJ buyers.
Which loans does the Homeowners Protection Act cover?
The act covers a mortgage on a single-family dwelling (one dwelling unit) that is the borrower's principal residence, for transactions consummated on or after July 29, 1999 (12 U.S.C. 4901(14), (15), (17)). "Private mortgage insurance" excludes insurance under the National Housing Act (FHA) and the VA and rural housing programs (4901(13)). FHA and VA loans have different requirements, so borrowers should ask their servicer (CFPB).
When can a borrower ask to cancel PMI?
On the cancellation date: when the principal balance is first scheduled to reach 80% of the original value, or reaches 80% through actual payments, such as extra principal (4901(2)). The servicer must cancel if the borrower (4902(a)):
- Asks in writing
- Has a good payment history: no payment 60+ days late in the 12-month period that began 24 months before the request, and none 30+ days late in the last 12 months (4901(4))
- Is current on payments
- Meets the holder's requirements for evidence that the value hasn't declined below original value, and certifies there's no subordinate lien
Original value is the lesser of the contract sales price or the appraised value at closing. For a refinance, it's the appraised value the lender relied on (4901(12)).
When does PMI end automatically?
| Trigger | What happens | Source |
|---|---|---|
| Scheduled to reach 78% of original value | Terminates if current; if not, the first day of the first month after the borrower becomes current | 4901(18); 4902(b) |
| Midpoint of the amortization period | Final termination the first day of the following month, if current (e.g., year 15 of a 30-year loan) | 4902(c) |
| After cancellation or termination | No premiums more than 30 days later; unearned premiums returned within 45 days | 4902(e)–(f) |
What exceptions surprise buyers?
- High-risk loans. For loans classified as high risk at closing, borrower-requested cancellation and 78% automatic termination don't apply. Midpoint termination still does. For non-conforming high-risk loans, the statute instead sets termination when the balance is scheduled to reach 77% (4902(g)). Lenders must disclose at closing whether an exemption applies (4903(a)).
- Lender-paid mortgage insurance. The borrower can't cancel it; it ends only when the loan is refinanced, paid off or otherwise terminated. It usually comes with a higher interest rate, and the lender must explain this in writing by the loan commitment (12 U.S.C. 4905).
- Loan modifications reset the cancellation, termination and midpoint dates to the new terms (4902(d)).
What should a new NJ agent explain?
Agents don't quote premiums or promise removal dates. They can point buyers to the PMI disclosure they get at closing, which must show the cancellation and termination dates for a fixed-rate loan (4903(a)), and to the servicer's annual notice. For budgeting conversations, see rent vs. buy in NJ and working with first-time buyers. Payment math is on amortization and interest math.
Financing concepts like PMI are part of NJ pre-licensing. Business Elementary's 75-hour pre-licensing course covers the financing unit behind them.
Sources
- 12 U.S.C. 4901, definitions (Cornell LII): https://www.law.cornell.edu/uscode/text/12/4901
- 12 U.S.C. 4902, termination of PMI (Cornell LII): https://www.law.cornell.edu/uscode/text/12/4902
- 12 U.S.C. 4903, disclosure requirements (Cornell LII): https://www.law.cornell.edu/uscode/text/12/4903
- 12 U.S.C. 4905, lender-paid mortgage insurance (Cornell LII): https://www.law.cornell.edu/uscode/text/12/4905
- CFPB, What is private mortgage insurance?: https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
- CFPB, When can I remove PMI from my loan?: https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/
- PSI New Jersey Real Estate Candidate Information Bulletin (updated 2/1/2026): https://test-takers.psiexams.com/api/content/bulletin/1667
Last reviewed: November 7, 2026