Let Quinsigamond Appraisal Services help you learn if you can cancel your PMI

A 20% down payment is usually accepted when buying a house. 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 expenses of foreclosure, reselling the home, and regular value changes in the event a purchaser is unable to pay.

During the recent mortgage boom of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the worth of the house is less than what is owed on the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. It's lucrative for the lender because they collect the money, and they get the money if the borrower defaults, opposite from a piggyback loan where the lender consumes all the losses.

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

How can home owners refrain from bearing the expense of PMI?

The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise homeowners can get off the hook beforehand. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.

It can take many years to arrive at the point where the principal is only 20% of the original loan amount, so it's important to know how your home has appreciated in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends hint at declining home values, you should understand that real estate is local.

The hardest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Quinsigamond Appraisal Services, we're masters at recognizing value trends in Worcester, Worcester County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often cancel the PMI with little trouble. At that time, the home owner 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