Race Appraisal Services, LLC can help you remove your Private Mortgage Insurance

A 20% down payment is typically accepted when getting a mortgage. The lender's risk is often only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and natural value variations on the chance that a purchaser doesn't pay.

During the recent mortgage boom of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the low down payment with Private Mortgage Insurance or PMI. This supplemental policy protects the lender if a borrower is unable to pay on the loan and the value of the home is less than the balance of the loan.

Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's lucrative for the lender because they collect the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender consumes all the costs.

How homeowners can refrain from bearing the cost of 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 equals 78 percent of the primary loan amount. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, keen home owners can get off the hook sooner than expected.

Because it can take countless years to arrive at the point where the principal is just 20% of the original amount borrowed, it's crucial to know how your home has appreciated in value. After all, any appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be adhering to the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends forecast falling home values, you should realize 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 keep up with the market dynamics of our area. At Race Appraisal Services, LLC, we know when property values have risen or declined. We're masters at analyzing value trends in East Longmeadow, Hampden County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally remove the PMI with little effort. At which time, the homeowner 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