When is private mortgage insurance typically discontinued?

Private mortgage insurance (PMI) is typically required for conventional loans when the borrower makes a down payment of less than 20% of the home's purchase price. The purpose of PMI is to protect the lender in case the borrower defaults on the loan. As the homeowner pays down the mortgage and the equity in the home increases, there comes a point when the risk to the lender is sufficiently reduced, allowing for the discontinuation of PMI.

In general, PMI is automatically terminated when the loan-to-value (LTV) ratio reaches 78% of the original value of the home. More commonly, lenders allow borrowers to request the cancellation of PMI when their LTV ratio falls below 80%. This threshold indicates that the borrower has built up at least 20% equity in the home, reducing the lender's risk and aligning with the PMI policy justification.

For probability ratios higher or lower than these figures, PMI is typically not discontinued. For example, a 50% LTV ratio and a 90% LTV ratio do not align with the standard practices regarding PMI cancellation. Thus, the correct answer focusing on the accurate threshold for discontinuation of PMI aligns with market norms and lender policies.