For loans made since July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance goes under 78 percent of the purchase amount � but not when the loan reaches 22 percent equity. (There are some loans that are not covered by this law -like some loans considered 'high risk'.) The good news is that you can request cancelation of your PMI yourself (for a loan that closed past July '99), regardless of the original purchase price, once the equity reaches twenty percent.
Familiarize yourself with your monthly statements to keep track of principal payments. Also keep track of the price that other homes are being sold for in your neighborhood. You are paying mostly interest if you closed your loan fewer than 5 years ago, so your principal probably hasn't gone down much.
You can start the process of PMI cancelation when you you think that your equity has reached 20%. First you will let your lending institution know that you are asking to cancel your PMI. Then you will be required to verify that you have at least 20 percent equity. You can acquire proof of your equity by getting a state certified appraisal using form URAR-1004 (Uniform Residential Appraisal Report), which is required by most lending institutions before canceling PMI.
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