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

A 20% down payment is usually the standard when purchasing a home. The lender's risk is oftentimes only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value changes on the chance that a purchaser doesn't pay.

Banks were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the value of the house is less than the loan balance.

PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they secure 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 can a home buyer refrain from bearing the cost of PMI?

With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy homeowners can get off the hook beforehand. The law states that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.

It can take many years to reach the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends hint at decreasing home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home may have acquired equity before things calmed down.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It is an appraiser's job to understand the market dynamics of their area. At Tierney Appraisals, we're masters at pinpointing value trends in Beverly, Essex 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 most often drop the PMI with little trouble. At which time, the home owner 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