Have equity in your home? Want a lower payment? An appraisal from Astute Appraisals, Inc. can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuations in the event a borrower defaults.
During the recent mortgage upturn of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the worth of the home is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender absorbs all the losses, PMI is lucrative for the lender because they secure the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise home owners can get off the hook sooner than expected.
It can take many years to get to the point where the principal is only 20% of the original amount borrowed, so it's important to know how your home has grown in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be following the national trends and/or your home might have gained equity before things cooled off, so even when nationwide trends hint at declining home values, you should realize that real estate is local.
The toughest thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to know the market dynamics of their area. At Astute Appraisals, Inc., we're masters at pinpointing 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 most often do away with the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: