Let AC Realty & Appraisals help you determine if you can cancel your PMI
A 20% down payment is usually the standard when getting a mortgage. The lender's liability is generally only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value changes in the event a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the worth of the house is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender absorbs all the losses, PMI is favorable for the lender because they collect 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 home owners can refrain from bearing the cost of PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law promises that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, wise home owners can get off the hook sooner than expected.
It can take countless years to get to the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not be adhering to the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends forecast plunging home values, you should realize that real estate is local.
The hardest thing for many homeowners to know is just when their home's equity rises above 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 AC Realty & Appraisals, we know when property values have risen or declined. We're experts at analyzing value trends in Winter, Sawyer County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At which 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: