Premier Appraisal of SoCal can help you remove your Private Mortgage Insurance

It's widely understood that a 20% down payment is accepted when getting a mortgage. The lender's risk is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuations on the chance that a borrower defaults.

The market was working with down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the market price of the home is less than the balance of the loan.

PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the deficits, PMI is beneficial for the lender because they collect the money, and they receive payment if the borrower doesn't pay.

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

How can homeowners keep from bearing the expense of PMI?

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Wise homeowners can get off the hook a little early. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.

It can take many years to get to the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has grown in value. After all, any appreciation you've achieved over the years counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends indicate plummeting home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home could have acquired equity before things cooled off.

The hardest thing for most homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Premier Appraisal of SoCal, we know when property values have risen or declined. We're experts at recognizing value trends in Mission Viejo, Orange County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At that time, the homeowner 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