Have equity in your home? Want a lower payment? An appraisal from REVARI (Real Estate Valuation and Research Inc.) can help you get rid of your PMI.

When purchasing a home, a 20% down payment is typically the standard. Since the liability for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuationsin the event a purchaser is unable to pay.

During the recent mortgage boom of the last decade, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower defaults on the loan and the worth of the home is lower than the balance of the loan.

PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the damages, 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 expense of PMI?

The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook a little earlier.

It can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, so it's important to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends forecast declining home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have gained equity before things calmed down.

The difficult thing for almost all homeowners to understand 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 REVARI (Real Estate Valuation and Research Inc.), we're experts at determining value trends in Claremont, Sullivan County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually remove the PMI with little effort. At which time, the homeowner can enjoy 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