The MIP can be removed on 15+ year loans after a full five years. However, it is not based on a new appraisal amount. The HUD website says in several places a new appraisal will not be considered. The 78% calculation is based on the lower of the purchase price or appraised value at the time of purchase. So you actually have to pay down the principal to 78%. The calculation is not based on whether the market goes up or down.
Also, I have seen references to refundable MIP on the HUD website. However, I have not looked into/researched what that means. My gut thought (could be off) was that if you can remove the MIP after 5 years you HUD may owe you some of the 1.75% they added to the loan in the first place. Perhaps this is true if you refi too. Will let you know if I gain anymore insight there.
