For loans closed after July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance goes below 78 percent of the purchase price � but not at the point the borrower achieves 22 percent equity. (The law does not include a number of higher risk mortgages.) However, if your equity gets to 20% (regardless of the original price of purchase), you can cancel your PMI (for a mortgage loan closed after July 1999).
Familiarize yourself with your loan statements to keep a running total of principal payments. You'll want to be aware of the prices of the houses that are selling in your neighborhood. You are paying mostly interest if your mortgage closed fewer than 5 years ago, so your principal probably hasn't lowered much.
Once you determine you have reached 20 percent equity in your home, you can start the process of canceling your Private Mortgage Insurance. First you will let your lender know that you are requesting to cancel PMI. Lenders require proof of 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), which is required by most lending institutions before canceling PMI.
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