Let A.M. Appraisal help you discover if you can cancel your PMI

A 20% down payment is usually accepted when purchasing a home. Considering the risk for the lender is often only the remainder between the home value and the amount remaining on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuationson the chance that a purchaser is unable to pay.

During the recent mortgage boom of the mid 2000s, it became widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the worth of the property is lower than what the borrower still owes on the loan.

PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible. It's lucrative for the lender because they collect the money, and they receive payment if the borrower doesn't pay, different from a piggyback loan where the lender absorbs all the losses.

How buyers can refrain from bearing the expense of PMI

The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease 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 released when the principal amount equals just 80 percent. So, acute home owners can get off the hook ahead of time.

Considering it can take countless years to arrive at the point where the principal is just 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over the years counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends forecast plummeting home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have gained equity before things calmed down.

The toughest thing for many homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At A.M. Appraisal, we know when property values have risen or declined. We're experts at pinpointing value trends in Mission Viejo, Orange County and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally remove the PMI with little effort. At which time, the home owner can relish 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