Let A & B Tax Service help you learn if you can eliminate your PMI

A 20% down payment is usually the standard when buying a house. The lender's risk is often only the remainder between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser doesn't pay.

During the recent mortgage upturn of the last decade, it was customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the value of the home is less than the loan balance.

PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Different from a piggyback loan where the lender consumes all the costs, PMI is profitable for the lender because they secure the money, and they get the money if the borrower doesn't 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 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 initial loan amount. Acute homeowners can get off the hook a little early. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.

It can take countless years to reach the point where the principal is only 20% of the initial loan amount, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home might have secured equity before things simmered down, so even when nationwide trends predict falling home values, you should realize that real estate is local.

A certified, 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. It's an appraiser's job to recognize the market dynamics of their area. At A & B Tax Service, we're masters at analyzing value trends in Sturtevant, Racine County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At that 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