For loans closed after July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance goes below 78 percent of your purchase amount � but not at the point the borrower achieves 22 percent equity. (There are some exceptions -like a number of "high risk' loans.) But you are able to cancel PMI yourself (for loans closed past July 1999) at the point your equity reaches 20 percent, without consideration of the original purchase price.
Familiarize yourself with your monthly statements to keep your eye on principal payments. Also keep track of how much other homes are being sold for in your neighborhood. If your loan is under five years old, chances are you haven't paid down much principal � it's been mostly interest.
You can start the process of canceling PMI as soon as you you think that your equity reaches 20%. First you will tell your lender that you are asking to cancel PMI. Your lender will request documentation that your equity is high enough. 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 require one before they'll cancel PMI.
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