For loans closed since July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes below 78 percent of the purchase amount � but not at the point the borrower achieves 22 percent equity. (The legal obligation does not include certain higher risk mortgages.) However, you are able to cancel PMI yourself (for loans made past July 1999) when your equity rises to 20 percent, no matter the original purchase price.
Familiarize yourself with your loan statements to keep a running total of principal payments. Also keep track of how much other homes are purchased for in your neighborhood. Unfortunately, if yours is a recent mortgage - five years or under, you probably haven't had a chance to pay much of the principal: you have been paying mostly interest.
Once your equity has reached the required twenty percent, you are close to canceling your PMI payments, for the life of your loan. You will need to contact your lender to alert them that you want to cancel PMI payments. The lending institution will request proof that your equity is high enough. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will document your equity amount � and most lenders require one before they agree to cancel PMI.
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