Since 1999, lenders have been legally required to cancel a borrower's Private Mortgage Insurance (PMI) at the point his mortgage balance (for loans closed past July of that year) goes under seventy-eight percent of the purchase price, but not when the loan's equity reaches twenty-two percent or more. (There are some loans that are excluded -like some loans considered 'high risk'.) The good news is that you can request cancelation of your PMI yourself (for a mortgage loan closing past July '99), without considering the original purchase price, at the point your equity rises to twenty percent.
Familiarize yourself with your monthly statements to keep your eye on principal payments. You'll want to stay aware of the the purchase prices of the homes that sell in your neighborhood. You've been paying mostly interest if you closed your loan fewer than 5 years ago, so your principal probably hasn't gone down much.
When you think you've reached 20 percent equity, you can begin the process of freeing yourself from PMI payments. Contact the mortgage lender to request cancellation of PMI. Then you will be asked to submit proof that you have at least 20 percent equity. Most lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to determine your equity and eligibility for PMI cancellation.
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