Have equity in your home? Want a lower payment? An appraisal from Real Estate Appraisal Services of WI, Inc. can help you get rid of your PMI.

A standard practice when purchasing a home is to make a 20% down payment. This down payment provides a cushion for the lender against potential losses in case the borrower defaults on the loan. It covers the expenses associated with foreclosure, selling the home again, and natural changes in property value.

During the peak of the mortgage boom in the last decade, the market accepted down payments as low as 10%, 5%, and even 0%. To handle the additional risk associated with small down payments, lenders introduced Private Mortgage Insurance (PMI). PMI protects the lender if the borrower fails to repay the loan and the value of the house is lower than the loan amount.

However, PMI can be costly for borrowers, as it is typically bundled into the mortgage payment and may not be tax deductible. Lenders find it lucrative because they receive the money and are compensated if the borrower defaults, unlike a piggyback loan where the lender assumes all the risks.

How homeowners can keep from bearing the expense of PMI

The Homeowners Protection Act of 1998 requires lenders to automatically cancel PMI on most loans once the principal balance reaches 78% of the original loan amount. However, proactive homeowners can request its removal even earlier, when the principal amount equals 80%.

Reaching the point where the principal balance is only 20% of the initial loan amount can take many years. Therefore, it is important to understand how your home's value has appreciated over time. The appreciation your home has gained can contribute to eliminating PMI. So, why continue paying for it when your loan balance has fallen below the 80% mark? While national trends indicate falling home values, it's essential to recognize that real estate is influenced by local dynamics. Your neighborhood may not reflect the national trends, and your home may have accrued equity before the market stabilized.

To determine when your home's equity exceeds the 20% threshold, it is beneficial to consult an accredited and licensed real estate appraiser. They possess expertise in understanding market dynamics and can provide valuable insights into value trends in your area. At Real Estate Appraisal Services of WI, Inc., we specialize in pinpointing value trends in Princeton, Green Lake County, and surrounding areas. With an appraiser's analysis, the mortgage company is likely to cancel PMI without complications. As a result, homeowners can enjoy long-term savings from that point onward.