Let Mike Noble Appraisals help you discover if you can eliminate your PMI
It's typically inferred that a 20% down payment is common when purchasing a home. The lender's liability is oftentimes only the difference between the home value and the sum due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and natural value changes on the chance that a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it was common to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in case a borrower doesn't pay on the loan and the market price of the property 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 compiled into the mortgage monthly payment and often isn't even tax deductible. It's favorable for the lender because they collect the money, and they receive payment if the borrower defaults, unlike a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer keep from bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate 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 home owner, the PMI must be released when the principal amount reaches just 80 percent. So, keen home owners can get off the hook a little early.
Considering it can take many years to reach the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has appreciated in value. After all, any appreciation you've gained over the years counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends forecast decreasing home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home might have secured equity before things settled down.
The toughest thing for many homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly 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 pinpointing value trends in Montgomery, Elmore County and surrounding areas. When faced with data from an appraiser, the mortgage company will 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: