For loans made since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls under 78 percent of the purchase amount � but not when the borrower earns 22 percent equity. (This law does not include some higher risk mortgages.) The good news is that you can cancel your PMI yourself (for your mortgage loan that closed after July '99), no matter the original price of purchase, when the equity climbs to twenty percent.
Familiarize yourself with your mortgage statements to keep a running total of principal payments. You'll want to stay aware of the the purchase amounts of the homes that sell in your neighborhood. Unfortunately, if yours is a new mortgage loan - five years or fewer, you likely haven't started to pay very much of the principal: you are paying mostly interest.
At the point you think you have reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments. You will need to call your mortgage lender to let them know that you want to cancel PMI. Next, you will be asked to verify that you have at least 20 percent equity. You can acquire documentation of your home's equity by getting a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), required by most lending institutions before canceling PMI.
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