Let A. M. Appraisals help you learn if you can get rid of your PMI

When buying a house, a 20% down payment is usually the standard. Since the risk for the lender is generally only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and typical value variationsin the event a borrower defaults.

Lenders were accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan guards the lender in case a borrower doesn't pay on the loan and the value of the house is lower than what is owed on the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender consumes all the costs, PMI is lucrative for the lender because they collect the money, and they receive payment if the borrower is unable to pay.

How can homeowners keep from bearing the cost of PMI?

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Wise homeowners can get off the hook a little early. The law promises that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.

Since it can take many years to arrive at the point where the principal is only 20% of the original loan amount, it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends forecast plunging home values, realize that real estate is local. Your neighborhood may not be following the national trends and/or your home could have secured equity before things simmered down.

The difficult thing for almost all homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At A. M. Appraisals, we're masters at recognizing value trends in West Columbia, Lexington County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little effort. At that 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