Let Tri-City Appraisers help you discover if you can cancel your PMI
It's widely inferred that a 20% down payment is the standard when buying a house. The lender's liability is often only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and typical value variations on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible, PMI is pricey to a borrower. Opposite from a piggyback loan where the lender absorbs all the deficits, PMI is money-making for the lender because they acquire the money, and they receive payment 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 homebuyers keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook a little earlier. The law states that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent.
It can take many years to reach 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, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends signify declining home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have acquired equity before things settled down.
The difficult thing for almost all home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Tri-City Appraisers, we know when property values have risen or declined. We're masters at recognizing value trends in Tempe, Maricopa County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually do away with the PMI with little effort. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: