Let Accuracy Matters Appraisals help you figure out if you can get rid of your PMI
When getting a mortgage, a 20% down payment is typically the standard. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value variations on the chance that a borrower defaults.
During the recent mortgage upturn of the last decade, it was customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the market price of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender takes in all the losses, PMI is beneficial for the lender because they secure the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner keep from paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, wise home owners can get off the hook sooner than expected.
It can take countless years to reach the point where the principal is just 20% of the original amount borrowed, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've gained over time counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify falling home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have acquired equity before things calmed down.
The toughest thing for most home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Accuracy Matters Appraisals, we're experts at determining value trends in Burns, Dickson County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At that 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: