Area Appraisal Services, Inc. can help you remove your Private Mortgage Insurance

A 20% down payment is usually accepted when purchasing a home. Considering the risk for the lender is often only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value changesin the event a borrower is unable to pay.

During the recent mortgage upturn of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added policy guards the lender in case a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan.

Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI can be pricey to a borrower. Different from a piggyback loan where the lender takes in all the deficits, PMI is beneficial for the lender because they collect the money, and they get paid 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 homeowners refrain from bearing the cost of PMI?

With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen home owners can get off the hook sooner than expected. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.

It can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, so it's essential to know how your home has increased in value. After all, any appreciation you've obtained over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends indicate declining home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home might have acquired equity before things cooled off.

The hardest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Area Appraisal Services, Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Bethesda, Montgomery County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often drop the PMI with little trouble. At that time, the home owner 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

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