Have equity in your home? Want a lower payment? An appraisal from New York Appraisal can help you get rid of your PMI.

It's widely known that a 20% down payment is accepted when buying a house. The lender's risk is oftentimes only the remainder between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value variations in the event a purchaser defaults.

The market was accepting down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan protects the lender in the event a borrower doesn't pay on the loan and the market price of the home is less than what the borrower still owes on the loan.

PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. Opposite from a piggyback loan where the lender consumes all the deficits, PMI is money-making for the lender because they obtain the money, and they receive payment if the borrower doesn't pay.

How home owners can avoid bearing the cost of PMI

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, smart home owners can get off the hook a little early.

It can take many years to reach the point where the principal is only 20% of the original amount of the loan, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be following the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends hint at plunging home values, you should understand that real estate is local.

The difficult thing for most home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At New York Appraisal, we know when property values have risen or declined. We're masters at identifying value trends in Pomona, Rockland County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. At that 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