Mike Noble Appraisals can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is usually the standard. The lender's liability is oftentimes only the remainder between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and natural value fluctuations in the event a purchaser doesn't pay.
The market was accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the value of the home is lower than the balance of the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's money-making for the lender because they obtain the money, and they get paid if the borrower defaults, different from a piggyback loan where the lender absorbs 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 homebuyers refrain from paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law states that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart home owners can get off the hook ahead of time.
Because it can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, it's important to know how your home has appreciated in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be adopting the national trends and/or your home might have acquired equity before things calmed down, so even when nationwide trends indicate decreasing home values, you should understand that real estate is local.
The hardest thing for most homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At Mike Noble Appraisals, we know when property values have risen or declined. We're experts at identifying value trends in Montgomery, Elmore County and surrounding areas. Faced with data from an appraiser, the mortgage company will often remove the PMI with little trouble. At that 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: