Let REVARI (Real Estate Valuation and Research Inc.) help you discover if you can get rid of your PMI

It's generally understood that a 20% down payment is the standard when getting a mortgage. Considering the liability for the lender is often only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and typical value fluctuationson the chance that a purchaser is unable to pay.

Banks were working with down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the value of the property is lower than the loan balance.

PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible. It's profitable for the lender because they secure the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender consumes all the deficits.

How can a home owner refrain from paying PMI?

The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Smart home owners can get off the hook beforehand. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.

Because it can take many years to arrive at the point where the principal is only 20% of the initial loan amount, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards abolishing 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 predict falling home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have secured equity before things simmered down.

A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At REVARI (Real Estate Valuation and Research Inc.), we're masters at recognizing value trends in Claremont, Sullivan 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 usually remove the PMI with little trouble. At which time, the home owner 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