For loans made since July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan gets lower than 78 percent of your purchase amount � but not when the borrower achieves 22 percent equity. (There are some loans that are not included -like a number of "high risk' loans.) But if your equity reaches 20% (regardless of the original price of purchase), you have the legal right to cancel PMI (for a mortgage loan closed after July 1999).
Keep track of your principal payments. You'll want to stay aware of the the purchase amounts of the homes that are selling in your neighborhood. You've been paying mostly interest if your mortgage loan closed fewer than 5 years ago, so your principal probably hasn't gone down much.
When you find you've achieved at least 20 percent equity, you can start the process of getting PMI out of your budget. You will need to call your lending institution to let them know that you want to cancel PMI payments. Lenders ask for documentation verifying your eligibility at this point. You can acquire proof of your equity by getting a state certified appraisal using form URAR-1004 (Uniform Residential Appraisal Report), required by most lenders before canceling PMI.
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