For loans closed after July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes under 78 percent of your purchase price � but not when the borrower achieves 22 percent equity. (Certain "higher risk" mortgage loans are not included.) The good news is that you can cancel your PMI yourself (for your mortgage closing after July '99), without considering the original purchase price, when your equity rises to twenty percent.
Keep track of money going toward the principal. You'll want to be aware of the the purchase prices of the houses that are selling around you. Unfortunately, if you have a new loan - five years or fewer, you probably haven't begun to pay very much of the principal: you are paying mostly interest.
At the point you determine you've achieved at least 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments. You will need to notify your mortgage lender that you want to cancel PMI payments. The lending institution will ask for proof that your equity is at 20 percent or above. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) verifies your equity amount � and your lender will probably request one before they'll cancel PMI.
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