For loans closed after July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of the purchase price � but not when the borrower achieves 22 percent equity. (Some "higher risk" mortgage loans are not included.) The good news is that you can request cancelation of your PMI yourself (for your mortgage that closed after July '99), without considering the original purchase price, after 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. If your mortgage is fewer than five years old, it's likely you haven't paid down much principal � it's been mostly interest.
Once your equity has reached the required 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 require proof of eligibility at this point. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) is all the proof you need � and your lender will probably request one before they agree to cancel.
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