Let Quinsigamond Appraisal Services help you figure out if you can cancel your PMI
A 20% down payment is usually accepted when purchasing a home. The lender's risk is often only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations in the event a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the market price of the house is less than the balance of the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the losses, PMI is advantageous for the lender because they acquire 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 buyers can prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Smart homeowners can get off the hook a little early. The law promises that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Because it can take many years to get to the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has grown in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be adhering to the national trends and/or your home might have secured equity before things cooled off, so even when nationwide trends hint at falling home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Quinsigamond Appraisal Services, we're experts at analyzing value trends in Worcester, Worcester County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At that 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: