For loans made since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls under 78 percent of the purchase price � but not when the borrower earns 22 percent equity. (A number of "higher risk" mortgage loans are excluded.) The good news is that you can cancel your PMI yourself (for a mortgage loan that closed past July '99), no matter the original price of purchase, after the equity gets to twenty percent.
Keep a running total of each principal payment. Pay attention to the purchase prices of other homes in your neighborhood. You are paying mostly interest if your closing was fewer than 5 years ago, so your principal most likely hasn't gone down much.
You can begin the process of canceling PMI as soon as you calculate that your equity has reached 20%. You will first tell your lender that you are requesting to cancel PMI. Your lender will ask for proof that your equity is at 20 percent or above. The best proof there is can be found in a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), required by most lending institutions before canceling PMI.
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