The Homeowners Protection Act of 1998 lays out the minimum standards for mortgages in relation to PMI cancellation. There are two ways it can be cancelled: automatic, and borrower-requested.
Automatic is when it reaches 78% of the original value of the property - at that point, the bank must cancel PMI, regardless of the current value or any other details.
Borrower-requested is when the borrower requests it be cancelled. It requires only 80% of the original value (the lesser of the sales price or the appraisal at purchase), but it also requires the house not to have gone down in value. This may be where you're thinking an appraisal comes in; it's possible that the lender requires an appraisal to prove the value has not dropped.
There is nothing in the act allowing for it to be cancelled based on a new appraisal showing the value has risen, however. It's entirely possible that a mortgage might include such a term; it would not be required by law, however, so it's up to what was agreed on at signing.
You would potentially be able to refinance, of course, depending on your credit and other details, but it would not be free, obviously.
Here's the text:
A borrower may initiate cancellation of PMI coverage
by submitting a written request to the servicer.
The servicer must take action to cancel PMI when
• The principal balance of the loan
– Is first scheduled to reach 80 percent of the
‘‘original value’’4 (regardless of the outstanding
balance), based on
– The initial amortization schedule (in the
case of a fixed-rate loan)
– The amortization schedules (in the case of
an adjustable-rate loan) or
– Reaches 80 percent of the ‘‘original value,’’
based on actual payments
• The borrower has a good payment history5
• The borrower satisfies any requirement of the
mortgage holder for
– Evidence of a type established in advance
that the value of the property has not declined
below the original value and
– Certification that the borrower’s equity in the
property is not subject to a subordinate lien
And the footnotes:
Original value is defined as the lesser of the sales price of
the secured property, as reflected in the purchase contract, or the
appraised value at the time of loan consummation.
A borrower has a good payment history if he or she (1) has
not made a payment that was sixty days or more past due within
the first twelve months of the last two years prior to the
cancellation date or (2) has not made a payment that was thirty
days or more past due within twelve months of the cancellation