Let Barnstable/Plymouth Appraisal Services help you determine if you can get rid of your PMI
A 20% down payment is typically accepted when getting a mortgage. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it became widespread to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the value of the house is less than what the borrower still owes on the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly 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 defaults, opposite from 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 can a buyer keep from bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Acute homeowners can get off the hook sooner than expected. The law designates that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Because it can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, it's important to know how your home has grown in value. After all, any appreciation you've gained over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends indicate declining home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things cooled off.
The hardest thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Barnstable/Plymouth Appraisal Services, we're masters at identifying value trends in Buzzards Bay, County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often cancel the PMI with little anxiety. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: