Although lenders have been required (for loans closed after July 1999) to cancel Private Mortgage Insurance (PMI) when the balance goes below 78% of the price of purchase, they do not have to cancel PMI automatically if the loan's equity is more than 22%. (There are some exceptions -like some "high risk' loans.) However, if your equity rises to 20% (no matter what the original purchase price was), you have the legal right to cancel PMI (for a loan closed after July 1999).
Familiarize yourself with your mortgage statements to keep your eye on principal payments. Also be aware of what other homes are selling for in your neighborhood. You are paying mostly interest if you closed your mortgage loan fewer than 5 years ago, so your principal probably hasn't gone down much.
You can begin the process of canceling your PMI at the time you're sure your equity has reached 20%. First you will tell your lender that you are requesting to cancel your PMI. Lenders require proof of eligibility at this point. Most lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to verify your home's equity and eligibility for PMI cancellation.
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