profile picture

Appraisal-One can help you remove your Private Mortgage Insurance

When getting a mortgage, a 20% down payment is usually the standard. Since the liability for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and regular value fluctuationson the chance that a borrower is unable to pay.

During the recent mortgage upturn of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the worth of the house is less than what is owed on the loan.

PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. It's money-making for the lender because they collect the money, and they receive payment if the borrower doesn't pay, different from a piggyback loan where the lender absorbs all the costs.

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

How can homebuyers keep from bearing the cost of PMI?

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen home owners can get off the hook ahead of time. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.

Because it can take many years to reach the point where the principal is just 20% of the original amount of the loan, it's essential to know how your home has grown in value. After all, all of the appreciation you've obtained over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things calmed down, so even when nationwide trends forecast declining home values, you should understand that real estate is local.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Appraisal-One, we know when property values have risen or declined. We're masters at identifying value trends in Huntington Beach, Orange County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often 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