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REID E. CHOATE & ASSOCIATES, LLC can help you remove your Private Mortgage Insurance

It's typically inferred that a 20% down payment is accepted when purchasing a home. Considering the liability for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the charges of foreclosure, selling the home again, and natural value changesin the event a borrower defaults.

Lenders were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the value of the house is less than the balance of the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they obtain the money, and they get paid if the borrower doesn't pay, contradictory to a piggyback loan where the lender absorbs all the costs.

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

How buyers can prevent bearing the cost of PMI

The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law designates that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, smart homeowners can get off the hook ahead of time.

Since it can take countless years to arrive at the point where the principal is just 20% of the original loan amount, it's necessary to know how your home has grown in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends signify falling home values, realize that real estate is local. Your neighborhood may not be minding the national trends and/or your home might have acquired equity before things settled down.

The difficult thing for most home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At REID E. CHOATE & ASSOCIATES, LLC, we're experts at recognizing value trends in Pahoa, Hawaii 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 remove the PMI with little anxiety. At which time, the homeowner can enjoy 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