Let Appraisal Professionals help you decide if you can get rid of your PMI
It's largely known that a 20% down payment is accepted when getting a mortgage. The lender's liability is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value variations on the chance that a borrower doesn't pay.
The market was taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if 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.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. Unlike a piggyback loan where the lender consumes all the costs, PMI is favorable for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can avoid bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Acute homeowners can get off the hook beforehand. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take many years to arrive at the point where the principal is only 20% of the initial amount borrowed, so it's crucial to know how your home has grown in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict falling home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have secured equity before things simmered down.
The hardest thing for many homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At Appraisal Professionals, we're experts at pinpointing value trends in Kyle, Hays 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 generally cancel the PMI with little anxiety. 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: