Have equity in your home? Want a lower payment? An appraisal from Appraisal-One can help you get rid of your PMI.
A 20% down payment is typically accepted when getting a mortgage. Since the risk for the lender is usually only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and regular value changeson the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional policy guards the lender in case a borrower doesn't pay on the loan and the worth of the house is less than what is owed on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. Opposite from a piggyback loan where the lender consumes all the deficits, PMI is advantageous for the lender because they collect the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Wise homeowners can get off the hook a little early. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
Considering it can take countless years to arrive at the point where the principal is just 20% of the original loan amount, it's crucial to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at decreasing home values, be aware that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things simmered down.
The difficult thing for most homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At Appraisal-One, we know when property values have risen or declined. We're masters at identifying value trends in Huntington Beach, Orange County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little trouble. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: