Let John Donahue & Associates help you figure out if you can cancel your PMI

When buying a house, a 20% down payment is usually the standard. The lender's risk is often only the remainder between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value variations on the chance that a purchaser doesn't pay.

Banks were taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the home is less than what is owed on the loan.

PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. It's favorable for the lender because they collect the money, and they get the money if the borrower is unable to pay, opposite from a piggyback loan where the lender takes in all the losses.

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

How can homeowners prevent bearing the expense of PMI?

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook ahead of time. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.

Since it can take countless years to get to the point where the principal is just 20% of the initial amount of the loan, it's crucial to know how your home has appreciated in value. After all, any appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends indicate plunging home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home could have gained equity before things settled down.

The difficult thing for most homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At John Donahue & Associates, we're masters at pinpointing value trends in Wareham, Plymouth County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At which time, the home owner can delight in 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