Although lending institutions have been obligated (for loans closed after July '99) to cancel Private Mortgage Insurance (PMI) at the point the loan balance gets under 78% of the price of purchase, they do not have to cancel automatically if the loan's equity is more than 22%. (The legal obligation does not cover a number of higher risk mortgages.) However, if your equity rises to 20% (regardless of the original purchase price), you have the legal right to cancel PMI (for a mortgage loan that after July 1999).
Familiarize yourself with your monthly statements to keep your eye on principal payments. Pay attention to the prices of other houses in your neighborhood. You've been paying mostly interest if your closing was fewer than 5 years ago, so your principal most likely hasn't been reduced by much.
You can begin the process of PMI cancelation as soon as you you think that your equity reaches 20%. Contact the lender to request cancellation of your Private Mortgage Insurance. The lending institution will request documentation that your equity is high enough. The best proof there is can be found in a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), required by most lenders before canceling PMI.
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