Have equity in your home? Want a lower payment? An appraisal from Duncan Appraisals can help you get rid of your PMI.

When purchasing a home, a 20% down payment is typically the standard. The lender's liability is oftentimes only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value fluctuations in the event a purchaser doesn't pay.

The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the added risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender if a borrower defaults on the loan and the value of the home is less than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender absorbs all the damages, PMI is lucrative for the lender because they acquire the money, and they get paid if the borrower defaults.

How can a buyer avoid paying PMI?

The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Wise homeowners can get off the hook ahead of time. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.

It can take many years to get to the point where the principal is only 20% of the original amount of the loan, so 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 abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends hint at decreasing 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 goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Duncan Appraisals, we're masters at identifying value trends in Wood Ridge, Bergen County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally drop the PMI with little trouble. At which time, the homeowner 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