Let Appraisal-One help you figure out if you can cancel your PMI
When getting a mortgage, a 20% down payment is typically the standard. Since the liability for the lender is generally only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value variationsin the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it was common to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the worth of the house is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can refrain from paying PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart home owners can get off the hook a little earlier. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Because it can take many years to get to the point where the principal is just 20% of the initial loan amount, it's important to know how your home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It's 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 analyzing value trends in Huntington Beach, Orange County and surrounding areas. When faced with information from an appraiser, the mortgage company will often eliminate the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: