For loans made after July 1999, lending institutions are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan falls lower than 78 percent of your purchase price � but not when the loan reaches 22 percent equity. (The law does not apply to certain higher risk mortgages.) The good news is that you can cancel your PMI yourself (for your mortgage loan closing past July '99), no matter the original purchase price, when your equity rises to twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. Find out the prices of other homes in your immediate area. If your mortgage is under five years old, probably you haven't paid down much principal � it's been mostly interest.
At the point you find you've reached 20 percent equity in your home, you can begin the process of canceling your Private Mortgage Insurance. Contact your lender to request cancellation of your PMI. Then you will be asked to submit documentation that you have at least 20 percent equity. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will be all the proof you need � and almost all lending institutions require one before they agree to cancel.
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