For loans made since July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan gets below 78 percent of the purchase price � but not when the loan reaches 22 percent equity. (A number of "higher risk" morgages are not included.) The good news is that you can cancel your PMI yourself (for a loan closing past July '99), no matter the original price of purchase, when the equity rises to twenty percent.
Keep track of money going toward the principal. Also keep track of the price that other homes are being sold for in your neighborhood. If your loan is under five years old, it's likely you haven't greatly reduced principal � you have been paying mostly interest.
At the point you find you have reached 20 percent equity, you can start the process of canceling your Private Mortgage Insurance. You will first let your lender know that you are requesting to cancel your PMI. Your lender will request proof that your equity is at 20 percent or above. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) is the best proof there is � and almost all lending institutions will require one before they agree to cancel PMI.
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