For loans closed since July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes lower than 78 percent of the purchase price � but not when 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 your mortgage loan that closed past July '99), regardless of the original price of purchase, after your equity rises to twenty percent.
Keep track of each principal payment. You'll want to keep track of the the purchase amounts of the houses that sell in your neighborhood. You are paying mostly interest if the closing was fewer than 5 years ago, so your principal probably hasn't gone down much.
At the point you find you've achieved at least 20 percent equity, you can begin the process of canceling your Private Mortgage Insurance. You will need to call your lender to alert them that you wish to cancel PMI. The lending institution will require documentation that your equity is high enough. You can acquire documentation 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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