For loans closed after July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls lower than 78 percent of the purchase price � but not at the point the borrower achieves 22 percent equity. (This legal requirment does not cover a number of higher risk mortgages.) The good news is that you can cancel your PMI yourself (for a mortgage that closed past July '99), without considering the original price of purchase, at the point the equity gets to twenty percent.
Familiarize yourself with your loan statements to keep your eye on principal payments. Also keep track of the price that other homes are purchased for in your neighborhood. Unfortunately, if you have a recent mortgage loan - five years or under, you likely haven't started to pay very much of the principal: you have been paying mostly interest.
At the point your equity has risen to the desired twenty percent, you are close to stopping your PMI payments, once and for all. You will need to notify your mortgage lender that you wish to cancel PMI payments. Lending institutions request proof of eligibility at this point. You can get proof of your home's equity by getting a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), which is required by most lenders before canceling PMI.
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