Have equity in your home? Want a lower payment? An appraisal can help you get rid of your PMI.

When buying a house, a 20% down payment is usually the standard. The lender's liability is generally only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value changes in the event a borrower doesn't pay.

During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to endure the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan covers the lender in the event a borrower is unable to pay on the loan and the value of the property is lower than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they secure the money, and they receive payment if the borrower defaults, separate from a piggyback loan where the lender absorbs all the damages.

How can home owners prevent bearing the cost of PMI?

With the implementation 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 reaches 78 percent of the original loan amount. Keen home owners can get off the hook sooner than expected. The law states that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.

It can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends signify decreasing home values, be aware that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have secured equity before things settled down.

The hardest thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At Smith Appraisal Services, we're masters at analyzing value trends in BELLEVILLE, Dane 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 often eliminate the PMI with little effort. At that time, the home owner 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