Although lenders have been legally obligated (for loans closed after July 1999) to cancel Private Mortgage Insurance (PMI) at the time the balance dips under 78% of the purchase price, they do not have to cancel automatically if the borrower's equity is over 22%. (This legal obligation does not cover a number of higher risk mortgages.) The good news is that you can request cancelation of your PMI yourself (for a mortgage loan that closed after July '99), without considering the original purchase price, when the equity climbs to twenty percent.
Review your statements often. You'll want to keep track of the the purchase amounts of the homes that sell around you. You've been paying mostly interest if you closed your loan fewer than 5 years ago, so your principal probably hasn't been reduced by much.
Once your equity has reached the desired twenty percent, you are close to getting rid of your PMI payments, for the life of your loan. You will first let your lender know that you are requesting to cancel PMI. Lenders require proof of eligibility at this point. You can acquire documentation of your equity by getting a state certified appraisal using form URAR-1004 (Uniform Residential Appraisal Report), which is required by most lending institutions before canceling PMI.
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