Let AAAnderson Associates Inc. help you decide if you can get rid of your PMI

A 20% down payment is usually accepted when buying a house. The lender's liability is oftentimes only the difference between the home value and the amount due on the loan, so the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and typical value fluctuations on the chance that a borrower is unable to pay.

During the recent mortgage boom of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in the event a borrower defaults on the loan and the worth of the property is less than the balance of the loan.

PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible. It's favorable for the lender because they secure the money, and they get the money if the borrower defaults, separate from a piggyback loan where the lender absorbs all the deficits.

How homeowners can keep from bearing the cost 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 reaches 78 percent of the initial loan amount. Wise homeowners can get off the hook a little earlier. The law guarantees that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.

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

The difficult thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to keep up with the market dynamics of their area. At AAAnderson Associates Inc., we know when property values have risen or declined. We're masters at analyzing value trends in Vancouver, Clark County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At that time, the homeowner can delight in 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