For loans closed after July 1999, lending institutions are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes under 78 percent of the purchase price � but not when the loan reaches 22 percent equity. (This law does not apply to some higher risk mortgages.) The good news is that you can cancel your PMI yourself (for your mortgage that closed after July '99), regardless of the original price of purchase, when the equity rises to twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. You'll want to be aware of the prices of the houses that sell around you. Unfortunately, if you have a recent mortgage - five years or under, you likely haven't been able to pay very much of the principal: you have been paying mostly interest.
You can start the process of canceling your PMI as soon as you're sure your equity has risen to 20%. Contact your lending institution to request cancellation of PMI. Your lender will require proof that your equity is at 20 percent or above. Usually lenders require a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to determine your equity and eligibility for PMI cancellation.
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