For loans closed since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance gets lower than 78 percent of the purchase price � but not at the point the borrower achieves 22 percent equity. (A number of "higher risk" loans are excluded.) The good news is that you can cancel your PMI yourself (for a mortgage loan that closed past July '99), regardless of the original purchase price, at the point your equity rises to twenty percent.
Familiarize yourself with your monthly statements to keep track of principal payments. You'll want to keep track of the prices of the homes that are selling in your neighborhood. If your mortgage is under five years old, it's likely you haven't paid down much principal � you have paid mostly interest.
You can begin the process of PMI cancelation at the time you're sure your equity has reached 20%. You will need to contact your lender to alert them that you want to cancel PMI. Next, you will be asked to submit proof that you have at least 20 percent equity. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will be all the proof you need � and your lender will probably require one before they agree to cancel PMI.
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