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My lender, US Bank, is refusing to terminate my PMI even though I am now below the 78% loan to value ratio. We've been perfect customers and have never missed a payment. Their reasoning is that they don't have to automatically terminate until my originally scheduled date I would have hit the 78% threshold, if making the regular minimum payments every month - not until May 2018. I've paid more than required each month and therefore have hit my date earlier. I have been paying this mortgage for 9 years at this point.

They have said the only way they will consider removing PMI is if I pay $150 for an appraisal and prove the original value has not declined. However, we know our property value has dropped at this point.

Any advice? It seems unbelievable that after being diligent customers for 9 years and paying more than required, we would be penalized and forced to continue paying PMI despite a loan to value ratio is now lower than 78 percent.

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    Re: "However, we know our property value has dropped at this point". Did you mean to write "not dropped"? – Chris W. Rea Jul 3 '15 at 19:01
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    Most properties in the region dropped in value over the previous five to seven years due to market conditions. We've actually done improvements to the house - new kitchen, new siding, new windows, etc. but recent home sales in the area show that our value has still most likely dropped despite those improvements. – Todd Jul 3 '15 at 19:04
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    Also, my understanding of the housing Protection Act shows a clear difference between requesting PMI to be removed at 80% and automatic termination when you hit 78%. if requesting, it's required to prove value has not dropped. That requirement does not exist for automatic termination at 78 percent, but instead puts the onus on the lender to automatically terminate based solely on original value - regardless of current market value. – Todd Jul 3 '15 at 19:06
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    I don't see how you can know that you have reached 78% LTV unless you have had the house appraised. Have you? – DJClayworth Jul 3 '15 at 20:06
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    The 78% LTV is based on original loan value (the total principal amount for the mortgage itself), regardless of market value. – Todd Jul 3 '15 at 20:08
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Yes. Other posts here have asked similar questions, the 78% is automatic based on the original amortization. To be clear - on the date you closed, you could have looked at the amortization table and seen that at year x month y it hits 78%. If, via early pre payments of principal, you hit it sooner, the appraisal is required.

  • that's not how our mortgage was worded - whether the date OR value is hit, the PMI drops – warren Jul 10 '15 at 15:35
  • Pardon my circular reasoning, but if OPs bank did that, he'd be all set, right? – JTP - Apologise to Monica Jul 10 '15 at 18:53
  • he would - just saying not all mortgages are based on the time .. ours isn't – warren Jul 11 '15 at 20:09
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I was recently looking over the paperwork on my mortgage and it has a clause in it similar to what US Bank is telling you. On the date that the mortgage is scheduled to reach 78%, PMI is automatically dropped. If you reach that percentage earlier, you can request that it be dropped, but the bank has the option to require an appraisal (at your expense) to ensure that the home has not dropped in value.

In short, check your contract. Likely they are well within their rights to do that. Since you say the value has dropped, you are likely stuck (likely couldn't even refinance to get rid of PMI due to the value drop), but it may be worth going in to the nearest branch and talking to someone.

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    Great answer, from my experience save the money, the appraisers are going to screw you in any way they can. Although banks state they do not work with appraisers I believe this is a hoax and a scam to lure more money into both of their pockets. Don't bother... – JonH Jul 6 '15 at 18:03
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This is quite understandable behavior on their part. By your own admission you probably don't meet the threshold. Is it any wonder they want the PMI to continue?

  • Loren - you are missing the point entirely. The Homeowners Protection Act states the lender must automatically terminate the PMI when "The principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the secured property (based solely on the initial amortization schedule, in the case of a fixed-rate loan). The key phrase in this law is "original value", not current market value. We have met this, but because we reached this point ahead of schedule, the lender is refusing to automatically terminate the PMI. – Todd Jul 4 '15 at 2:59
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    @Todd As you say--based solely on the initial amortization schedule. That time hasn't been reached. – Loren Pechtel Jul 4 '15 at 3:45
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    @Todd, I think it is you missing the point entirely. The key phrase in the law is "first scheduled to reach 78 percent" not as soon as it reaches 78%. – user9822 Jul 4 '15 at 10:47
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This is very confusing, however I think I understand it. If the buyer pays extra payments which accelerates the LTV to 80% or below before the scheduled date on the amortization chart, the lender can require an appraisal of the property to confirm property current market value. Unfortunately, an apprasal could cost the buyer $400 or more and the buyer must decide if it's worth paying that fee or just wait until the amortization date has reached the 78% value. Personally speaking this is BS but this is the way it is when you don't have 20% of the purchase price at the time of purchasing a house. .

  • Welcome to Money.SE. Your answer seems to rephrase what's already been offered. Why do you think it's BS? If one closes on a mortgage, 90% LTV, and the next day, pulls $20,000 off a credit card to save the $400/mo PMI, do you think the bank should just say 'thanks' and drop it? – JTP - Apologise to Monica Oct 30 at 18:28
  • @JTP-ApologisetoMonica Yes, they should. The risk that PMI protects them from doesn't exist any more. Prior to your paying them the $20,000, they had a risk that they would never get that $20,000 payment and the house's residual value would not be enough to cover it. Once they've gotten that payment, the risk no longer exists. The remaining (much smaller) risk that the house will drop even more than 20% in value is supposed to be borne by the originator and not covered by the borrower. – David Schwartz Nov 1 at 15:19
  • Your point is well articulated. I doubt those who author the regulations will be so quick to change them. This has been the rule for quite some time. I can make a case for a mortgage that is 80% loan to value and marketable as a collateralized security, with a secondary loan on top for up to, say, 15%. At a much higher interest rate of course. This would mimic the added expense of PMI, while leaving it for the homeowner to decide how to pay it off quickly. That said, I would like to avoid a repeat of the housing collapse of 2004(?) – JTP - Apologise to Monica Nov 1 at 15:28

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