profile picture

Have equity in your home? Want a lower payment? An appraisal from Appraisal First, Inc. can help you get rid of your PMI.

A 20% down payment is typically accepted when buying a house. Considering the risk for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuationsin the event a purchaser doesn't pay.

During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added plan covers the lender if a borrower defaults on the loan and the market price of the house is less than what the borrower still owes on the loan.

PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. It's beneficial for the lender because they obtain the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender consumes all the costs.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can home owners refrain from bearing the cost of PMI?

With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, wise home owners can get off the hook sooner than expected.

It can take countless years to arrive at the point where the principal is just 20% of the original amount borrowed, so it's essential to know how your home has increased in value. After all, all of the appreciation you've acquired over time counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends hint at falling home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home may have secured equity before things cooled off.

A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Appraisal First, Inc., we know when property values have risen or declined. We're experts at analyzing value trends in Springfield, Greene County and surrounding areas. When faced with figures from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which time, the homeowner can delight in the savings from that point on.

Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year