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 below 78 percent of your purchase amount � but not when the loan reaches 22 percent equity. (The legal requirment does not include certain higher risk mortgages.) However, if your equity reaches 20% (regardless of the original purchase price), you have the right to cancel PMI (for a mortgage closed after July 1999).
Keep a running total of your principal payments. Also be aware of the price that other homes are purchased for in your neighborhood. Unfortunately, if yours is a recent mortgage - five years or fewer, you likely haven't had a chance to pay much of the principal: you are paying mostly interest.
Once you think you've reached 20 percent equity, you can start the process of freeing yourself from PMI payments. Contact the lender to ask for cancellation of your Private Mortgage Insurance. The lending institution will require documentation that your equity is high enough. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will document your equity amount � and most lenders request one before they agree to cancel PMI.
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