For loans made since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan gets below 78 percent of the purchase price � but not when the borrower achieves 22 percent equity. (This legal requirment does not cover certain higher risk mortgages.) The good news is that you can request cancelation of your PMI yourself (for your loan that closed past July '99), no matter the original purchase price, once the equity reaches twenty percent.
Familiarize yourself with your mortgage statements to keep a running total of principal payments. Also be aware of the price that other homes are purchased for in your neighborhood. You've been paying mostly interest if you closed your mortgage fewer than 5 years ago, so your principal most likely hasn't lowered much.
Once your equity has reached the magic number of twenty percent, you are close to canceling your PMI payments, for the life of your loan. First you will tell your lender that you are requesting to cancel PMI. Lenders require paperwork verifying your eligibility at this point. You can acquire proof of your equity by getting a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), required by most lending institutions before canceling PMI.
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