For loans closed since July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes below 78 percent of the purchase price � but not when the loan reaches 22 percent equity. (The law does not include a number of higher risk mortgages.) The good news is that you can cancel your PMI yourself (for your mortgage loan closing after July '99), no matter the original purchase price, once the equity climbs to twenty percent.
Familiarize yourself with your loan statements to keep your eye on principal payments. You'll want to keep track of the the purchase prices of the houses that are selling in your neighborhood. Unfortunately, if you have a new loan - five years or fewer, you likely haven't begun to pay a lot of the principal: you are paying mostly interest.
You can begin the process of PMI cancelation as soon as you calculate that your equity has risen to 20%. Contact the lending institution to ask for cancellation of your PMI. Lenders require proof of eligibility at this point. A state certified appraisal using the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will be all the proof you need � and most lending institutions request one before they agree to cancel PMI.
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