For loans closed since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes below 78 percent of your purchase amount � but not at the point the loan reaches 22 percent equity. (Certain "higher risk" loan programs are not included.) However, if your equity gets to 20% (no matter what the original purchase price was), you have the legal right to cancel your PMI (for a loan closed past July 1999).
Study your statements often. You'll want to keep track of the the purchase 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 gone down much.
When you find you have reached 20 percent equity, you can start the process of canceling your Private Mortgage Insurance. You will need to notify your mortgage lender that you want to cancel PMI. Then you will be asked to submit proof that you are eligible to cancel. The best proof there is can be found in 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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