For loans closed since July 1999, lending institutions are required (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 when the borrower earns 22 percent equity. (The legal obligation does not apply to a number of higher risk mortgages.) However, if your equity rises to 20% (regardless of the original price of purchase), you have the legal right to cancel your PMI (for a mortgage that after July 1999).
Familiarize yourself with your monthly statements to keep a running total of principal payments. You'll want to stay aware of the prices of the houses that sell in your neighborhood. Unfortunately, if yours is a new mortgage - five years or under, you likely haven't been able to pay very much of the principal: you are paying mostly interest.
At the point you find you've reached 20 percent equity, you can begin the process of freeing yourself from PMI payments. You will first let your lender know that you are asking to cancel PMI. Your lender will require documentation that your equity is high enough. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will be all the proof you need � and your lender will probably request one before they agree to cancel.
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