Although lenders have been legally obligated (for loans closed after July '99) to cancel Private Mortgage Insurance (PMI) when the loan balance goes below 78% of the price of purchase, they do not have to take similar action if the borrower's equity is above 22%. (The legal obligation does not cover some higher risk mortgages.) The good news is that you can cancel your PMI yourself (for a mortgage closing after July '99), no matter the original price of purchase, after the equity gets to twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. Pay attention to the purchase prices of other homes in your neighborhood. If your loan is fewer than five years old, chances are you haven't made much progress with the principal � you have been paying mostly interest.
At the point your equity has risen to the desired twenty percent, you are close to getting rid of your PMI payments, for the life of your loan. Contact your lender to ask for cancellation of PMI. Your lender will require documentation that your equity is at 20 percent or above. You can get proof of your equity by getting a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), required by most lenders before canceling PMI.
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