Have equity in your home? Want a lower payment? An appraisal from A. M. Appraisals can help you get rid of your PMI.

It's typically understood that a 20% down payment is accepted when getting a mortgage. Since the liability for the lender is oftentimes only the difference between the home value and the amount due on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value variationsin the event a purchaser defaults.

Banks were taking down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender if a borrower doesn't pay on the loan and the market price of the property is lower than the balance of the loan.

PMI can be costly to a borrower because 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 favorable for the lender because they obtain the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender absorbs all the losses.

How can buyers keep from bearing the expense of PMI?

The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart home owners can get off the hook beforehand. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

It can take countless years to arrive at the point where the principal is just 20% of the original loan amount, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends indicate falling home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have secured equity before things calmed down.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to understand the market dynamics of our area. At A. M. Appraisals, we know when property values have risen or declined. We're masters at analyzing value trends in West Columbia, Lexington County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At that time, the home owner can relish 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