Let Tierney Appraisals help you determine if you can eliminate your PMI

A 20% down payment is typically the standard when buying a house. Because the risk for the lender is usually only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and typical value changeson the chance that a purchaser defaults.

Lenders were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the value of the property is less than the balance of the loan.

PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Different from a piggyback loan where the lender consumes all the losses, PMI is favorable for the lender because they obtain the money, and they receive payment 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 home buyers prevent bearing the expense of PMI?

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute home owners can get off the hook sooner than expected. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.

Because it can take many years to reach the point where the principal is just 20% of the initial amount borrowed, it's essential to know how your home has grown in value. After all, every bit of appreciation you've gained over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate falling home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home may have acquired equity before things settled down.

The difficult thing for most homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our 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 information from an appraiser, the mortgage company will generally remove the PMI with little anxiety. At that time, the homeowner 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