For loans made after July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance goes under 78 percent of the purchase price � but not when the loan reaches 22 percent equity. (A number of "higher risk" mortgage loans are excluded.) However, if your equity reaches 20% (regardless of the original price of purchase), you have the legal right to cancel your PMI (for a loan closed after July 1999).
Familiarize yourself with your monthly statements to keep a running total of principal payments. Pay attention to the purchase prices of other homes in your neighborhood. You've been paying mostly interest if your mortgage closed fewer than 5 years ago, so your principal probably hasn't gone down much.
When you determine you have achieved at least 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments. Contact the mortgage lender to request cancellation of your PMI. Lenders ask for documentation verifying your eligibility at this point. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) is all the proof you need � and your lender will probably require one before they agree to cancel PMI.
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