For loans made after July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan gets below 78 percent of the purchase amount � but not when the borrower earns 22 percent equity. (A number of "higher risk" mortgage loans are excluded.) The good news is that you can request cancelation of your PMI yourself (for a mortgage closing past July '99), regardless of the original price of purchase, when the equity climbs to twenty percent.
Familiarize yourself with your monthly statements to keep track of principal payments. You'll want to be aware of the prices of the homes that are selling around you. You are paying mostly interest if your mortgage loan closed fewer than 5 years ago, so your principal most likely hasn't lowered much.
You can begin the process of canceling your PMI when you calculate that your equity has reached 20%. You will need to notify your mortgage lender that you wish 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 most lending institutions will require one before they agree to cancel PMI.
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