Let Watson Appraisal Services, Inc help you figure out if you can eliminate your PMI

A 20% down payment is usually accepted when buying a house. Because the risk for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuationson the chance that a purchaser doesn't pay.

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 endure the added risk of the small 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 the balance of the loan.

PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the costs, PMI is profitable for the lender because they obtain the money, and they get paid if the borrower defaults.

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

How homebuyers can keep from bearing the cost of PMI

With the employment 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 original loan amount. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy home owners can get off the hook ahead of time.

Since it can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has grown in value. After all, all of the 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? Your neighborhood may not be heeding the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends indicate decreasing home values, you should realize that real estate is local.

The toughest thing for most homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Watson Appraisal Services, Inc, we're masters at determining value trends in Raleigh, Wake County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually 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