Let Huettner Appraisal Inc. help you learn if you can get rid of your PMI

When purchasing a home, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the sum due on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value variations in the event a borrower doesn't pay.

During the recent mortgage boom of the last decade, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower doesn't pay on the loan and the worth of the house is less than what is owed on the loan.

PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the costs, PMI is profitable for the lender because they acquire the money, and they receive payment if the borrower defaults.

How home owners can keep from bearing the expense of PMI

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, keen homeowners can get off the hook ahead of time.

It can take countless years to reach the point where the principal is just 20% of the original loan amount, so it's important to know how your home has appreciated in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends predict plunging home values, you should understand that real estate is local.

The difficult thing for many home owners to know 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 understand the market dynamics of our area. At Huettner Appraisal Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Cape Coral, Lee County and surrounding areas. Faced with information from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At which time, the home owner can relish 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