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

A 20% down payment is usually accepted when buying a house. The lender's risk is often only the remainder between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and natural value changes on the chance that a purchaser doesn't pay.

Banks were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the market price of the property is less than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender takes in all the losses, PMI is profitable for the lender because they obtain the money, and they get paid if the borrower is unable to pay.

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

How home buyers can avoid bearing the expense of PMI

With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart homeowners can get off the hook beforehand. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.

Considering it can take countless years to arrive at the point where the principal is just 20% of the initial loan amount, it's crucial to know how your home has increased in value. After all, any appreciation you've obtained over time counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends signify decreasing home values, you should understand that real estate is local.

An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At R.M. Conrad & Associates, Inc., we're masters at recognizing value trends in West Chester, Chester County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually 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