Let Herrin Appraisal Company help you learn if you can cancel your PMI

A 20% down payment is typically the standard when purchasing a home. The lender's risk is generally only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuations on the chance that a purchaser is unable to pay.

The market was working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the additional risk of the low down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender if a borrower is unable to pay on the loan and the value of the property is lower than the balance of the loan.

Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender consumes all the costs, PMI is advantageous for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.

How can home owners prevent bearing the expense of PMI?

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise home owners can get off the hook a little early. The law states that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.

Considering it can take countless years to get to the point where the principal is just 20% of the initial loan amount, it's important to know how your home has increased in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Your neighborhood might not be adopting the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.

The hardest thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Herrin Appraisal Company, we know when property values have risen or declined. We're masters at identifying value trends in Clemmons, Forsyth County and surrounding areas. When faced with data from an appraiser, the mortgage company will often remove the PMI with little effort. At that 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