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

It's typically known that a 20% down payment is common when purchasing a home. The lender's risk is generally only the remainder between the home value and the sum remaining on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, reselling the home, and regular value fluctuations in the event a borrower doesn't pay.

During the recent mortgage boom of the last decade, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the worth of the home is less than what is owed on the loan.

Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and generally isn't even tax deductible, PMI can be expensive to a borrower. It's favorable for the lender because they secure the money, and they receive payment if the borrower is unable to pay, contradictory to a piggyback loan where the lender consumes all the damages.

How home owners can prevent bearing the expense of PMI

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, acute home owners can get off the hook sooner than expected.

Considering it can take many years to reach the point where the principal is just 20% of the initial amount of the loan, it's essential to know how your home has grown in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends hint at plunging home values, you should realize that real estate is local.

The hardest thing for almost all home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to understand the market dynamics of their area. At REVARI (Real Estate Valuation and Research Inc.), we know when property values have risen or declined. We're masters at analyzing value trends in Claremont, Sullivan County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often drop the PMI with little anxiety. 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