Let Bower Appraisal Inc. help you learn if you can get rid of your PMI

A 20% down payment is usually accepted when getting a mortgage. The lender's risk is oftentimes only the difference between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuations in the event a borrower defaults.

Banks were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional plan guards the lender in the event a borrower doesn't pay on the loan and the market price of the home is less than what the borrower still owes on the loan.

Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI can be costly to a borrower. Separate from a piggyback loan where the lender consumes 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 keep from bearing the expense of PMI

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Acute home owners can get off the hook a little early. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

Considering it can take countless years to reach the point where the principal is just 20% of the original loan amount, it's important to know how your home has grown in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends signify falling home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things simmered down.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to understand the market dynamics of their area. At Bower Appraisal Inc., we're masters at identifying value trends in Marco Island, Collier County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often cancel the PMI with little trouble. At which time, the homeowner can enjoy 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