Beginning in 1999, lenders have been obligated to cancel a borrower's Private Mortgage Insurance (PMI) when his mortgage balance (for a loan closed past July of that year) goes down below seventy-eight percent of the purchase price, but not when the loan's equity reaches twenty-two percent or higher. (The legal obligation does not apply to certain higher risk mortgages.) The good news is that you can cancel your PMI yourself (for your mortgage closing after July '99), regardless of the original price of purchase, once your equity gets to twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. You'll want to keep track of the the purchase prices of the houses that are selling around you. Unfortunately, if yours is a new loan - five years or under, you likely haven't begun to pay very much of the principal: you have been paying mostly interest.
You can begin the process of canceling your PMI at the time you you think that your equity has reached 20%. First you will let your lending institution know that you are requesting to cancel your PMI. Lending institutions require documentation verifying your eligibility at this point. The best proof there is can be found in a state certified appraisal using form URAR-1004 (Uniform Residential Appraisal Report), required by most lenders before canceling PMI.
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