Have equity in your home? Want a lower payment? An appraisal from Race Appraisal Services, LLC can help you get rid of your PMI.

When getting a mortgage, a 20% down payment is typically the standard. Since the liability for the lender is oftentimes only the remainder between the home value and the amount due on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value changeson the chance that a purchaser defaults.

During the recent mortgage boom of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the additional risk of the minimal down payment with Private Mortgage Insurance or PMI. This supplementary plan covers the lender in the event a borrower defaults on the loan and the value of the home is less than the balance of the loan.

Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Separate from a piggyback loan where the lender absorbs all the deficits, PMI is favorable for the lender because they acquire the money, and they get the money if the borrower doesn't pay.

How can a home buyer prevent bearing the cost of PMI?

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law designates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook a little earlier.

It can take many years to get to the point where the principal is only 20% of the initial loan amount, so it's necessary to know how your home has increased in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify plunging home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things settled down.

The hardest thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At Race Appraisal Services, LLC, we're masters at identifying value trends in East Longmeadow, Hampden County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually eliminate the PMI with little trouble. At that 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