Let Maria Hopkins Associates help you determine if you can cancel your PMI

When purchasing a home, a 20% down payment is usually the standard. The lender's liability is often only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changes on the chance that a purchaser is unable to pay.

During the recent mortgage boom of the mid 2000s, it became widespread to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults 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 bundled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's beneficial for the lender because they secure the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the costs.

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

How can a homebuyer prevent bearing the cost of PMI?

With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook ahead of time.

Considering it can take many years to get to the point where the principal is just 20% of the initial loan amount, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've gained over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be minding the national trends and/or your home might have gained equity before things cooled off, so even when nationwide trends forecast decreasing home values, you should realize that real estate is local.

The difficult thing for most homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At Maria Hopkins Associates, we know when property values have risen or declined. We're masters at determining value trends in Spencer, Worcester County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often remove the PMI with little anxiety. 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