Remove your PMI and lower you monthly payment

When buying a house, a 20% down payment is typically the standard. Because the liability for the lender is often only the difference between the home value and the amount due on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and regular value changes on the chance that a borrower defaults.

The market is working with 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 manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. This supplemental plan guards the lender if a borrower doesn't pay on the loan and the value of the home is lower than what is owed on the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they acquire the money, and they receive payment if the borrower defaults, separate from a piggyback loan where the lender takes in all the deficits.

How home buyers can avoid paying PMI

With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, smart home owners can get off the hook a little earlier.

Because it can take countless years to reach the point where the principal is only 20% of the original loan amount, it's important to know how your home has increased in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends hint at plummeting home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home might have acquired equity before things calmed down.

A certified residential appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Full View Appraisal Services, Inc., we're experts at analyzing value trends in Broward & Miami-Dade County and the surrounding areas. We know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.