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Buyers who put down less than 20 percent down payment are required to pay Private Mortgage Insurace (PMI). The Homeowners Protection Act of 1999 requires lender to inform borrower when they can cancel coverage. PMI can also be cancelled once the loan to value is 80 percent or less base on the original purchase price or appraised value - whichever is less. Automatic cancellation can also happen once 22 percent equity is reached (for mortgages with terms of 30 years or more). However, the law only applies to loans made on or after July 29, 1999.

PMI may cancelled during the first 5 years under the following conditions - mortgages with terms of 15 years or less and the LTV reaches 78% or less.

In order to determine wheather the threshold has been reached according to the Federal Reserve Board:

a) Multiply the present value of your mortgage by 1.25.

b) Ascertain the purchase price or appraised value of your property.

c) If the value in step a is larger than b, PMI will continue. If the value in step a is smaller than b, you may request PMI cancellation.  

FHA mortgage insurance is required for the first 5 years regardless of the Loan-To-Value.