by Attorney Ilona Bray

Save money by asking your mortgage company to cancel your private mortgage insurance (PMI).

Private mortgage insurance (PMI) protects the lender should you default on your mortgage payments, and is often required for loans where the down payment is less than 15 to 20%. It is added on to your mortgage payment each month. PMI can usually be canceled after your home's value has risen enough to give you 20 to 25% equity in your house.

When You Can Get Your PMI Canceled

Start trying to get your PMI cancelled as soon as you suspect that your equity in your home or its value has gone up significantly. The most obvious way for equity to increase is because you've made a lot of mortgage payments. Your equity may also increase because your home's value has gone up due to a rise in local home values or because you've remodeled. Such value-based rises in equity are harder to prove to your lender, and some lenders require you to wait a minimum time (around two years) before they will approve cancellation of PMI on this basis.

Did you choose to pay a higher interest rate on your mortgage in order to avoid PMI premiums? If so, don't expect your lender to lower your payments after your equity has increased. Your interest rate is permanent, even if the lender used the extra money to purchase PMI to cover your loan. Your best course of action is probably to refinance.

How to Get Your PMI Canceled

The exact rules for canceling PMI are largely in the hands of your lender -- or, to be more accurate, in the hands of the company from whom your lender buys mortgage insurance (though you'll never deal with the insurance company directly).

Some baseline rules about cancellation were established by the federal "Homeowners' Protection Act." This law, however, doesn't offer consumers as much protection as its name would suggest, and it applies only to people who bought their homes after July 29, 1999.