Let Duncan Appraisals help you figure out if you can eliminate your PMI

A 20% down payment is typically the standard when purchasing a home. The lender's liability is generally only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and natural value variations on the chance that a borrower is unable to pay.

Lenders were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary policy covers the lender if a borrower is unable to pay on the loan and the market price of the property is lower than the balance of the loan.

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

How homeowners can keep from paying PMI

The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart home owners can get off the hook ahead of time. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so it's essential to know how your home has grown in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends hint at declining home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have secured equity before things cooled off.

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 Duncan Appraisals, we know when property values have risen or declined. We're experts at pinpointing value trends in Wood Ridge, Bergen County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often do away with the PMI with little effort. At that time, the homeowner can enjoy 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