Let Barnstable/Plymouth Appraisal Services help you learn if you can get rid of your PMI
When buying a house, a 20% down payment is usually the standard. Considering the liability for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and natural value variationsin 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 handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. Different from a piggyback loan where the lender consumes all the losses, PMI is beneficial for the lender because they collect the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners prevent paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Wise home owners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take countless years to arrive at the point where the principal is just 20% of the initial loan amount, it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends signify declining home values, understand 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 simmered down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Barnstable/Plymouth Appraisal Services, we know when property values have risen or declined. We're masters at determining value trends in Buzzards Bay, Barnstable County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally remove the PMI with little anxiety. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: