For loans made since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance gets under 78 percent of your purchase price � but not when the borrower earns 22 percent equity. (A number of "higher risk" morgages are excluded.) The good news is that you can cancel your PMI yourself (for a mortgage loan that closed after July '99), without considering the original purchase price, after your equity gets to twenty percent.
Familiarize yourself with your mortgage statements to keep your eye on principal payments. Also stay aware of what other homes are purchased for in your neighborhood. If your loan is under five years old, chances are you haven't paid down much principal � you have been paying mostly interest.
Once you think you've reached 20 percent equity in your home, you can start the process of freeing yourself from PMI payments. Contact the mortgage lender to ask for cancellation of your PMI. Your lender will ask for documentation that your equity is at 20 percent or above. Most lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to determine your home's equity and eligibility for PMI cancellation.
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