Although lending institutions have been required (for loans closed past July '99) to cancel Private Mortgage Insurance (PMI) when the loan balance goes under 78% of the purchase price, they do not have to cancel automatically if the borrower's equity is over 22%. (A number of "higher risk" loans are not included.) The good news is that you can request cancelation of your PMI yourself (for a mortgage that closed after July '99), without considering the original purchase price, when your equity gets 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 yours is a recent mortgage loan - five years or under, you likely haven't started to pay very much of the principal: you are paying mostly interest.
Once your equity has reached the desired twenty percent, you are not far away from getting rid of your PMI payments, for the life of your loan. Contact your lender to ask for cancellation of your PMI. Lenders require paperwork verifying your eligibility at this point. Usually lenders require a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to verify your equity and eligibility for canceling PMI.
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