Let Barnstable/Plymouth Appraisal Services help you discover if you can eliminate your PMI
A 20% down payment is usually the standard when purchasing a home. Because the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and regular value variationson the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the worth of the house is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they collect the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Smart home owners can get off the hook sooner than expected. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.
Considering it can take many years to arrive at the point where the principal is only 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The difficult thing for most homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Barnstable/Plymouth Appraisal Services, we know when property values have risen or declined. We're masters at recognizing value trends in Buzzards Bay, Barnstable County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: