By Christine Hierlmaier
Times Staff Writer

Private mortgage insurance, or PMI, allows home buyers with down payments of less than 20 percent to obtain conventional (or non-governmental) mortgages. The insurance pays the lender 20-30 percent of the mortgage balance if the home buyer defaults.

But as a home buyer, the burden is on you to cancel the policy once your equity is large enough. Here are a few steps for determining if you are eligible to cancel your private mortgage insurance on a conventional mortgage:

• The mortgage must be at least 24 months old.
• You must have an excellent payment history.
• You must have 20 percent to 25 percent equity in your home.

Check with your lender. If you have a 30-year, fixed-rate mortgage with 5 percent down and 8 percent interest, it takes about 15 years to reach 20 percent equity. But you can shorten the span by paying extra on the principal, or making twice-monthly payments.

You may qualify to cancel PMI if the value of your property has increased. For example, if you've paid $10,000 of the principal of a $100,000 home, and the value has increased to $115,000, your loan-to-value is now 78 percent.

Some lenders will require a new appraisal of the property to prove the value, which could cost $200 to $500.

Minnesota requires lenders to notify new borrowers of their eligibility to cancel PMI after 24 months. But experts say the best safeguard against overpaying PMI is diligence in monitoring your mortgage and knowing what institution owns it.

If your lender can't tell you who owns the loan, more than likely it's Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corp). Call Fannie Mae at (800) 732-6643 for guidelines on canceling PMI