For loans made after July 1999, lenders are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of the purchase price � but not at the point the loan reaches 22 percent equity. (A number of "higher risk" loans are excluded.) But if your equity gets to 20% (no matter what the original price was), you have the right to cancel PMI (for a loan that past July 1999).
Verify the numbers
Familiarize yourself with your mortgage statements to keep track of principal payments. Pay attention to the purchase prices of other homes in your immediate area. You are paying mostly interest if you closed your mortgage loan fewer than 5 years ago, so your principal most likely hasn't been reduced by much.
The Proof is in the Appraisal
At the point you determine you have reached 20 percent equity, you can begin the process of freeing yourself from PMI payments. You will need to notify your mortgage lender that you want to cancel PMI. Lending institutions request paperwork verifying your eligibility at this point. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) verifies your equity amount � and most lenders require one before they agree to cancel.