Let Barnstable/Plymouth Appraisal Services help you figure out if you can get rid of your PMI
A 20% down payment is usually accepted when buying a house. The lender's liability is generally only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and typical value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it became widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender handle the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added plan takes care of the lender if a borrower defaults on the loan and the worth of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they collect the money, and they get paid if the borrower defaults, different from a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer keep from paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial 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.
It can take many years to reach the point where the principal is only 20% of the initial loan amount, so it's important to know how your home has appreciated in value. After all, all of the appreciation you've acquired over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home may have secured equity before things calmed down, so even when nationwide trends indicate falling home values, you should understand that real estate is local.
The difficult thing for many homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At Barnstable/Plymouth Appraisal Services, we know when property values have risen or declined. We're experts at pinpointing value trends in Buzzards Bay, Barnstable County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: