Let Performance Appraisals Inc. help you figure out if you can get rid of your PMI
It's generally understood that a 20% down payment is the standard when getting a mortgage. Considering the risk for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and typical value changeson the chance that a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the worth of the home is lower than the balance of the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the damages, PMI is money-making for the lender because they collect the money, and they get the money 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 a homeowner avoid bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook sooner than expected.
It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so 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 should you pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends predict plunging home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home might have acquired equity before things settled down.
The difficult thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Performance Appraisals Inc., we're experts at analyzing value trends in Ponte Vedra Beach, Saint Johns County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often do away with the PMI with little effort. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: