Let Astute Appraisals, Inc. help you figure out if you can cancel your PMI
It's typically known that a 20% down payment is accepted when buying a house. The lender's liability is generally only the difference between the home value and the amount due on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and regular value fluctuations on the chance that a borrower defaults.
The market was taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the market price of the home is less than the loan balance.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible. It's money-making for the lender because they acquire 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 can home buyers avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Smart homeowners can get off the hook beforehand. The law states that, at the 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 just 20% of the initial amount of the loan, it's crucial to know how your home has appreciated in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends signify falling 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 tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At Astute Appraisals, Inc., we're experts at analyzing value trends in Columbia, Howard County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally cancel the PMI with little effort. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: