Let R.M. Conrad & Associates, Inc. help you discover if you can cancel your PMI

When purchasing a home, a 20% down payment is typically the standard. Considering the risk for the lender is usually only the remainder between the home value and the amount due on the loan, the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value variationsin the event a borrower doesn't pay.

Banks were working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the worth of the home is less than the balance of the loan.

PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often 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, opposite from a piggyback loan where the lender absorbs all the damages.

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

How buyers can avoid bearing the cost of PMI

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart home owners can get off the hook a little earlier. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.

Since it can take many years to get to the point where the principal is only 20% of the original loan amount, it's important to know how your home has grown in value. After all, every bit of appreciation you've achieved over the years counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be minding the national trends and/or your home might have gained equity before things cooled off, so even when nationwide trends hint at declining home values, you should understand that real estate is local.

The hardest thing for most homeowners to understand 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 know the market dynamics of our area. At R.M. Conrad & Associates, Inc., we're experts at analyzing value trends in West Chester, Chester County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little effort. At which 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