Appraisal-One can help you remove your Private Mortgage Insurance
A 20% down payment is typically accepted when getting a mortgage. The lender's risk is often only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value changes on the chance that a borrower defaults.
The market was accepting down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower defaults on the loan and the worth of the house is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's lucrative for the lender because they secure the money, and they get the money if the borrower is unable to pay, separate from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid bearing the expense of PMI
The Homeowners Protection Act of 1998 requires 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. Wise home owners can get off the hook beforehand. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
It can take countless years to get to the point where the principal is only 20% of the original amount borrowed, so it's essential to know how your home has increased in value. After all, every bit of appreciation you've achieved over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things cooled off, so even when nationwide trends predict declining home values, you should understand that real estate is local.
The difficult thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It's an appraiser's job to keep up with 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. When faced with data from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At which 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: