Let Duncan Appraisals help you learn if you can get rid of your PMI

A 20% down payment is usually accepted when buying a house. Since the risk for the lender is often only the remainder between the home value and the sum due on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and typical value changesin the event a purchaser doesn't pay.

Banks were taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the home is lower than the balance of the loan.

Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender takes in all the damages, PMI is money-making for the lender because they obtain the money, and they get paid if the borrower defaults.

How can home owners refrain from paying PMI?

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, savvy home owners can get off the hook a little earlier.

Considering it can take many years to get to the point where the principal is only 20% of the original loan amount, it's essential to know how your home has grown in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends indicate declining home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things calmed down.

An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Duncan Appraisals, we know when property values have risen or declined. We're experts at identifying value trends in Wood Ridge, Bergen County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. At which 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