While lenders have been legally obligated (for loans closed after July 1999) to cancel Private Mortgage Insurance (PMI) when the loan balance goes below 78% of the price of purchase, they do not have to cancel PMI automatically if the borrower's equity is over 22%. (There are some exceptions -like some loans considered 'high risk'.) However, if your equity gets to 20% (no matter what the original purchase price was), you can cancel PMI (for a mortgage loan closed past July 1999).
Familiarize yourself with your monthly statements to keep your eye on principal payments. Make yourself aware of the purchase prices of other homes in your immediate area. You are paying mostly interest if you closed your loan fewer than 5 years ago, so your principal most likely hasn't been reduced by much.
Once your equity has risen to the desired twenty percent, you are not far away from canceling your PMI payments, for the life of your loan. You will need to call your mortgage lender to let them know that you want to cancel PMI payments. Next, you will be asked to verify that you are eligible to cancel. Usually lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to determine your home's equity and eligibility for PMI cancellation.
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