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 gets below 78 percent of your purchase amount � but not when the borrower earns 22 percent equity. (The legal obligation does not cover some higher risk mortgages.) The good news is that you can request cancelation of your PMI yourself (for a loan that closed after July '99), no matter the original price of purchase, at the point the equity rises to twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. Also keep track of how much other homes are selling for in your neighborhood. Unfortunately, if you have a recent loan - five years or fewer, you likely haven't had a chance to pay very much of the principal: you are paying mostly interest.
At the point your equity has reached the magic number of twenty percent, you are just a few steps away from canceling your PMI payments, once and for all. You will need to contact your mortgage lender to let them know that you wish to cancel PMI payments. Then you will be asked to verify that you are eligible to cancel. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) is all the proof you need � and your lender will probably request one before they agree to cancel PMI.
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