Barnstable/Plymouth Appraisal Services can help you remove your Private Mortgage Insurance
It's largely understood that a 20% down payment is accepted when getting a mortgage. The lender's liability is often only the difference 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 changes on the chance that a purchaser defaults.
Banks were working with down payments down to 10, 5 and even 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 in the event a borrower is unable to pay on the loan and the value of the home is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender takes in all the damages, PMI is money-making for the lender because they collect 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 buyers keep from bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook a little earlier.
Because it can take many years to get to the point where the principal is just 20% of the original loan amount, it's crucial to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends signify declining home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home could have gained equity before things settled down.
The toughest thing for most home owners to understand is just when their home's equity rises above the 20% point. An accredited, 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're masters at pinpointing value trends in Buzzards Bay, Barnstable County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little effort. At that 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: