Have equity in your home? Want a lower payment? An appraisal from Shamrock Appraisals, Inc. can help you get rid of your PMI.

When purchasing a home, a 20% down payment is typically the standard. Since the risk for the lender is oftentimes only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and natural value variationsin the event a purchaser defaults.

During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan takes care of the lender if a borrower is unable to pay on the loan and the value of the home is lower than the loan balance.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender takes in all the damages, PMI is profitable for the lender because they secure the money, and they receive payment if the borrower doesn't pay.

How can home owners keep from paying PMI?

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Keen homeowners can get off the hook sooner than expected. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent.

It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so it's important to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be following the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends hint at declining home values, you should realize that real estate is local.

The difficult thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their area. At Shamrock Appraisals, Inc., we know when property values have risen or declined. We're masters at recognizing value trends in Tuscaloosa, Tuscaloosa County and surrounding areas. When faced with data 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