Let Barnstable/Plymouth Appraisal Services help you learn if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's liability is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is lower than the balance of the loan.
PMI is pricey to a borrower in 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 secure the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender consumes 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 homebuyers refrain from paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen homeowners can get off the hook sooner than expected. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take countless years to reach the point where the principal is just 20% of the original amount of the loan, it's essential to know how your home has increased in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends signify plummeting home values, you should realize that real estate is local.
The hardest thing for most homeowners to understand 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 understand 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 figures from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: