ABOUT PMI

When getting a mortgage, a 20% down payment is usually the standard. The lender's liability is generally only the difference between the home value and the balance remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and regular value fluctuations in the event a purchaser is unable to pay.

Lenders were accepting down payments dropping to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the additional risk of the low down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.

PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. It's favorable for the lender because they collect the money, and they get the money if the borrower doesn't pay, unlike a piggyback loan where the lender consumes all the deficits.

The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise homeowners can get off the hook a little earlier. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.

Since it can take many years to arrive at the point where the principal is only 80% of the initial amount borrowed, it's essential to know how your Utah home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not conform to national trends and/or your home may have gained equity before things declined. So even when nationwide trends indicate a reduction in home values, you should realize that real estate is local.

An accredited, Utah licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. It's an appraiser's job to know the market dynamics of their area. At Axial Appraisals, we're experts at recognizing value trends in Salt Lake County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.