profile picture

Barnstable/Plymouth Appraisal Services can help you remove your Private Mortgage Insurance

A 20% down payment is typically the standard when buying a house. The lender's liability is generally only the difference between the home value and the sum due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value variations on the chance that a borrower defaults.

Banks were working with down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is less than what the borrower still owes on the loan.

Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible, PMI is pricey to a borrower. Opposite from a piggyback loan where the lender absorbs all the losses, PMI is beneficial 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 can a home buyer keep from paying PMI?

With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, wise home owners can get off the hook ahead of time.

Considering it can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, it's important to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not be following the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends signify decreasing home values, you should understand that real estate is local.

A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Barnstable/Plymouth Appraisal Services, we know when property values have risen or declined. We're masters at analyzing value trends in Buzzards Bay, Barnstable County and surrounding areas. When faced with data from an appraiser, the mortgage company will often drop the PMI with little anxiety. At that 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