profile picture

Let Barnstable/Plymouth Appraisal Services help you learn if you can eliminate your PMI

It's typically known that a 20% down payment is common when buying a house. The lender's risk is oftentimes only the remainder between the home value and the sum due on the loan, so the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and regular value fluctuations on the chance that a borrower is unable to pay.

Lenders were taking 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 handle the added risk of the low down payment with Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in case a borrower defaults on the loan and the value 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 lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI is pricey to a borrower. Different from a piggyback loan where the lender consumes all the losses, PMI is profitable for the lender because they secure the money, and they receive payment 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 buyers can refrain from bearing the cost 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 primary loan amount. Keen homeowners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.

Considering it can take many years to get to the point where the principal is just 20% of the original loan amount, it's necessary to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be adopting the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends hint at falling home values, you should realize that real estate is local.

An accredited, licensed real estate appraiser can help home owners 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 keep up with the market dynamics of their area. At Barnstable/Plymouth Appraisal Services, we're experts at identifying value trends in Buzzards Bay, Barnstable County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At which time, the homeowner can retain 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