Let Appraisal Solutions, Inc. help you decide if you can eliminate your PMI
When getting a mortgage, a 20% down payment is usually the standard. Considering the liability for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and regular value variationsin the event a purchaser is unable to pay.
Banks were working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional policy protects the lender in case a borrower defaults on the loan and the market price of the house is less than what the borrower still owes on the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. It's profitable for the lender because they collect the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner refrain from paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook sooner than expected.
Because it can take many years to reach the point where the principal is only 20% of the initial amount borrowed, it's essential to know how your home has grown in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things settled down, so even when nationwide trends signify plunging home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to know the market dynamics of their area. At Appraisal Solutions, Inc., we're experts at pinpointing value trends in Billings, Yellowstone County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often cancel the PMI with little effort. 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: