Susan Scotto Allison can help you remove your Private Mortgage Insurance

When buying a house, a 20% down payment is usually the standard. Considering the liability for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value fluctuationson the chance that a borrower is unable to pay.

During the recent mortgage boom of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy covers the lender in case a borrower is unable to pay on the loan and the worth of the home is less than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender consumes all the costs, PMI is beneficial for the lender because they collect the money, and they get the money 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 home buyers can refrain from paying PMI

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise home owners can get off the hook ahead of time.

Considering it can take many years to reach the point where the principal is only 20% of the initial amount borrowed, it's necessary to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends forecast declining home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things settled down.

The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Susan Scotto Allison, we're experts at recognizing value trends in Phoenix, Maricopa 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 generally drop the PMI with little effort. At that time, the homeowner can relish 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