The unbridled expenses of homeownership really hit home when you realize you're paying hundreds, if not thousands, of dollars annually in private mortgage insurance premiums just to protect your mortgage lender from the possibility that you might default on your loan. Those premiums, which are not tax-deductible, are the price you pay for putting down less than 20 percent of your home's purchase price. PMI may have let you buy your home sooner, but that doesn't mean you should pay for it one minute longer than you have to. Thanks to the 1998 Homeowners' Protection Act and measures passed by mortgage-purchasers Fannie Mae and Freddie Mac, there are two basic instances in which your PMI may be cancelled if you own a single-family residence. The first applies primarily to borrowers who got their mortgages on or after July 29, 1999. In that instance, your lender is required to automatically terminate your PMI when your equity in your home is scheduled to reach 22 percent in accordance with the original amortization schedule. But reaching that point can take years, depending on your down payment and your interest rate. The second instance applies to all mortgage borrowers. You are allowed to request that your PMI be cancelled much sooner if equity in your home reaches 20 percent by one or more of the following ways: you have paid down enough on your principal, your home appreciates in value, or you've made significant home improvements. But whether or not your request is granted in this instance depends greatly on your lender, who owns your mortgage and the terms of your loan. "There is no cookie cutter approach to this," says Jeff Lubar, spokesman for the Mortgage Insurance Companies of America (MICA), the trade association representing the private mortgage insurance industry.

Mind the conditions Ê ÊThe 20 percent threshold, for example, may have some conditions attached if you're basing your boosted equity on home appreciation alone. If your mortgage is owned by Fannie Mae or Freddie Mac, as many mortgages are, you'll be subject to "seasoning" factors. Say you put down $10,000 -- or 10 percent -- on a $100,000 home and then your house appreciates to $110,000 because property values in your area have gone up. The extra $10,000 in value is considered your equity, giving you the requisite 20 percent (your $10,000 down plus $10,000 appreciation). And, indeed, if your mortgage is five years old or more, you may request cancellation. But if it's two to five years old, you'll have to wait until you have 25 percent equity to qualify for cancellation. And if it's less than two years old, you're out of luck. "You have to have a minimum of two years," says Albert LeQuang, manager of counterparty risk management at Freddie Mac. On the other hand, you can escape the seasoning requirements if you have built up equity by making significant improvements to your house, LeQuang says.

Gaining home equity

• You boost equity in your home when: You pay down principal on your mortgage
• Your home's value appreciates
• You make home improvements

What you need to do Once you're sure you've got 20 percent equity or more, informing your lender by way of a hand-scrawled post-it note on your mortgage payment won't get you very far. If PMI cancellation is what you want, you have to make a formal request in writing, then prove your case. The company servicing your loan will tell you whether you need an appraiser, a broker's price opinion (BPO) or a comparative market analysis (CMA) to assess the current value of your home. You will have to pay for that assessment: an appraisal will run you between $300 and $350, while a BPO or CMA costs much less, according to MICA. In any case, use only those professionals recommended or pre-approved by your lender. Otherwise, you'll have wasted time and money on an appraisal that doesn't count. And, even if everyone agrees your equity has grown significantly, your lender may still refuse to cancel your PMI if you haven't established a good payment history. With delinquent payments, "we're going to credit and the borrower's ability to pay," says Joseph V. Fierro, chief operating officer of the New York Mortgage Company. But, he added, "I would reconsider allowing PMI to drop if the borrower could provide another 12 months of continual payments."