Eliminating Private Mortgage Insurance
For loans closed since July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan goes below 78 percent of the purchase amount � but not when the borrower achieves 22 percent equity. (The legal obligation does not apply to a number of higher risk mortgages.) However, if your equity reaches 20% (no matter what the original price was), you have the right to cancel the PMI (for a loan that after July 1999).
Verify the numbers
Familiarize yourself with your monthly statements to keep a running total of principal payments. Also be aware of the price that other homes are selling for in your neighborhood. If your loan is under five years old, chances are you haven't greatly reduced principal � it's been mostly interest.
The Proof is in the Appraisal
Once you think you have reached 20 percent equity in your home, you can start the process of freeing yourself from PMI payments. First you will tell your lender that you are requesting to cancel PMI. Next, you will be required to verify that you are eligible to cancel. Most lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to verify your equity and eligibility for canceling PMI.