For loans made after July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan falls below 78 percent of the purchase price � but not when the loan reaches 22 percent equity. (This legal obligation does not include a number of higher risk mortgages.) However, if your equity gets to 20% (no matter what the original purchase price was), you have the legal right to cancel the PMI (for a loan closed after July 1999).
Familiarize yourself with your mortgage statements to keep track of principal payments. Find out the selling prices of other homes in your immediate area. If your mortgage is fewer than five years old, chances are you haven't greatly reduced principal � it's been mostly interest.
You can start the process of canceling your PMI at the time you're sure your equity has risen to 20%. You will need to notify your mortgage lender that you wish to cancel PMI. Lenders ask for paperwork verifying your eligibility at this point. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) is the best proof there is � and your lender will probably request one before they agree to cancel.
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