For loans made after July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance gets lower than 78 percent of your purchase price � but not when the borrower earns 22 percent equity. (This legal obligation does not cover a number of higher risk mortgages.) The good news is that you can request cancelation of your PMI yourself (for a mortgage loan that closed past July '99), regardless of the original purchase price, after the equity reaches twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. You'll want to stay aware of the prices of the homes that are selling around you. You are paying mostly interest if you closed your mortgage fewer than 5 years ago, so your principal most likely hasn't been reduced by much.
Once your equity has reached the desired twenty percent, you are just a few steps away from stopping your PMI payments, for the life of your loan. You will need to contact the mortgage lender to let them know that you want to cancel PMI payments. The lending institution will request documentation that your equity is high enough. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) is all the proof you need � and most lenders request one before they'll cancel PMI.
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