What is "PMI" - and how can you remove it?

It's generally known that a 20% down payment is required when purchasing a home.  The lender's only risk is usually just the difference between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations on the chance that a borrower doesn't pay.

Banks were working with down payments discounted to 10, 5 and often 0 percent during the mortgage boom of the last decade.  How does a lender manage the added risk of the low down payment?  The answer is Private Mortgage Insurance, or PMI.  This supplementary plan takes care of the lender if a borrower defaults on the loan and the market price of the house is less than what is owed on the loan.

PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and on many occasions isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they obtain the money, and they receive payment if the borrower doesn't pay.

	Does your monthly house payment include a fee for PMI? Call Bobkat Appraisal Services today at or send us an e-mail. Documentation of your home's current value could save you thousands.

How homeowners can prevent bearing the expense of PMI

The Homeowners Protection Act of 1998 forces the lenders on nearly all loans (except FHA loans) to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount.  Smart homeowners can get off the hook sooner than expected.  The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.

Because it can take a significant number of years to get to the point where the principal is only 80% of the initial loan amount, it's essential to know how your home has appreciated in value.  After all, any appreciation you've obtained over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold?  Even when nationwide trends hint at falling home values, realize that real estate is local.  Your neighborhood may not be heeding the national trends and/or your home may have secured equity before things simmered down.

A certified, licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a hard thing to know.  It's an appraiser's job to keep up with the market dynamics of their area.  At Bobkat Appraisal Services, we're experts at recognizing value trends in St. Charles, Saint Louis County, and surrounding areas in Missouri and Illinois, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little trouble.  Then, the homeowner can relish the savings from that point on!