Let Quinsigamond Appraisal Services help you learn if you can get rid of your PMI
When purchasing a home, a 20% down payment is typically the standard. Considering the liability for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and regular value changesin the event a borrower defaults.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower is unable to pay on the loan and the value of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible, PMI is costly to a borrower. Contradictory to a piggyback loan where the lender takes in all the losses, PMI is money-making for the lender because they obtain the money, and they get paid 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 can a buyer keep from paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Acute home owners can get off the hook sooner than expected. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take many years to get to the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has increased in value. After all, every bit of appreciation you've acquired over time counts towards dismissing 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 could have acquired equity before things settled down, so even when nationwide trends forecast plunging home values, you should understand that real estate is local.
The difficult thing for many home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Quinsigamond Appraisal Services, we're masters at pinpointing value trends in Worcester, Worcester 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 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: