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Let REID E. CHOATE & ASSOCIATES, LLC help you decide if you can get rid of your PMI

A 20% down payment is usually accepted when getting a mortgage. The lender's liability is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations in the event a purchaser is unable to pay.

During the recent mortgage upturn 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 added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan covers the lender in the event a borrower doesn't pay on the loan and the market price of the home is lower than the loan balance.

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. Different from a piggyback loan where the lender takes in all the deficits, PMI is advantageous for the lender because they obtain the money, and they get the money 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 buyers can avoid bearing the cost of PMI

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Keen homeowners can get off the hook beforehand. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

Because it can take countless years to get to 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, every bit of appreciation you've gained over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things cooled off, so even when nationwide trends hint at plummeting home values, you should realize that real estate is local.

An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At REID E. CHOATE & ASSOCIATES, LLC, we're experts at determining value trends in Pahoa, Hawaii County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At that time, the home owner 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