Let Appraisal First, Inc. help you decide if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically the standard. The lender's liability is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value variations in the event a purchaser defaults.
Lenders were taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the market price of the property is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible, PMI can be pricey to a borrower. Different from a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they secure the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Savvy homeowners can get off the hook a little early. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take countless years to reach the point where the principal is only 20% of the original amount borrowed, it's crucial to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict falling home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home may have acquired equity before things settled down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Appraisal First, Inc., we know when property values have risen or declined. We're experts at analyzing value trends in Springfield, Greene County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often eliminate the PMI with little effort. 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: