Let Golden Rule Appraisals help you decide if you can get rid of your PMI

It's generally known that a 20% down payment is common when getting a mortgage. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and typical value fluctuations on the chance that a borrower defaults.

During the recent mortgage boom of the last decade, it became customary to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the market price of the house is less than what is owed 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 pricey to a borrower. Different from a piggyback loan where the lender consumes all the costs, PMI is beneficial for the lender because they secure the money, and they get paid if the borrower is unable to pay.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can a buyer refrain from paying PMI?

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, smart homeowners can get off the hook sooner than expected.

It can take many years to get to the point where the principal is just 20% of the initial amount of the loan, so it's important to know how your home has grown in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends indicate plummeting home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have acquired equity before things settled down.

The toughest thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to know the market dynamics of their area. At Golden Rule Appraisals, we know when property values have risen or declined. We're experts at pinpointing value trends in Edmond, Oklahoma County and surrounding areas. Faced with data from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that time, the homeowner 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