For loans made since July 1999, lending institutions are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance gets under 78 percent of the purchase amount � but not when the borrower achieves 22 percent equity. (This legal obligation does not apply to a number of higher risk mortgages.) However, you are able to cancel PMI yourself (for mortgages closed past July 1999) at the point your equity reaches 20 percent, no matter the original purchase price.
Familiarize yourself with your loan statements to keep a running total of principal payments. Make yourself aware of the purchase prices of other homes in your immediate area. You've been paying mostly interest if your loan closed fewer than 5 years ago, so your principal most likely hasn't lowered much.
You can start the process of PMI cancelation at the time you're sure your equity reaches 20%. First you will let your lender know that you are asking to cancel PMI. The lending institution will ask for documentation that your equity is at 20 percent or above. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will document your equity amount � and your lender will probably require one before they'll cancel PMI.
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