Let Quinsigamond Appraisal Services help you learn if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically the standard. 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 cushion against the expenses of foreclosure, selling the home again, and regular value changes on the chance that a borrower is unable to pay.
Lenders were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplemental policy protects the lender if a borrower doesn't pay on the loan and the worth of the house is lower than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's beneficial for the lender because they collect the money, and they receive payment if the borrower is unable to pay, contradictory to a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Savvy homeowners can get off the hook a little early. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
Because it can take many years to reach the point where the principal is only 20% of the original loan amount, it's important to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have secured equity before things cooled off, so even when nationwide trends forecast plummeting home values, you should realize that real estate is local.
The hardest thing for many home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Quinsigamond Appraisal Services, we know when property values have risen or declined. We're experts at identifying value trends in Worcester, Worcester County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: