For loans made since July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan falls below 78 percent of the purchase price � but not at the point the loan reaches 22 percent equity. (Certain "higher risk" loan programs are not included.) However, you are able to cancel PMI yourself (for loans made past July 1999) when your equity gets to 20 percent, regardless of the original price of purchase.
Familiarize yourself with your loan statements to keep track of principal payments. Also stay aware of what other homes are selling for in your neighborhood. Unfortunately, if you have a new mortgage loan - five years or fewer, you probably haven't begun to pay much of the principal: you are paying mostly interest.
When you think you have reached 20 percent equity in your home, you can begin the process of canceling your Private Mortgage Insurance. You will need to call the mortgage lender to alert them that you wish to cancel PMI. Your lender will ask for documentation that your equity is at 20 percent or above. You can get proof of your equity by getting a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), which is required by most lenders before canceling PMI.
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