profile picture

Let Appraisal-One help you determine if you can cancel your PMI

When purchasing a home, a 20% down payment is usually the standard. Since the liability 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 variationson the chance that a borrower defaults.

During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible, PMI can be costly to a borrower. Separate from a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they collect the money, and they get paid if the borrower defaults.

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

How can a home buyer keep from paying PMI?

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook a little early.

It can take many years to reach the point where the principal is just 20% of the initial loan amount, so it's important to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends hint at plunging home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home could have acquired equity before things calmed down.

The difficult thing for almost all home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Appraisal-One, we know when property values have risen or declined. We're masters at pinpointing value trends in Huntington Beach, Orange County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually drop the PMI with little trouble. 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