REVARI (Real Estate Valuation and Research Inc.) can help you remove your Private Mortgage Insurance

It's widely understood that a 20% down payment is common when purchasing a home. The lender's liability is generally only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and regular value variations in the event a purchaser is unable to pay.

During the recent mortgage upturn of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to endure the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplemental plan covers the lender in case a borrower is unable to pay on the loan and the worth of the house is less than what is owed on the loan.

PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and frequently isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the deficits, PMI is beneficial for the lender because they collect the money, and they receive payment if the borrower doesn't pay.

How homebuyers can prevent paying PMI

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook sooner than expected.

It can take many years to reach the point where the principal is only 20% of the original amount borrowed, so it's important to know how your home has appreciated in value. After all, any appreciation you've accomplished over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends hint at falling home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have acquired equity before things cooled off.

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 difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At REVARI (Real Estate Valuation and Research Inc.), we're masters at analyzing value trends in Claremont, Sullivan County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often remove the PMI with little effort. 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