Let Daniel Todd Appraisal Services, LLC help you learn if you can eliminate your PMI
A 20% down payment is usually accepted when getting a mortgage. The lender's risk is generally only the remainder between the home value and the amount due on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuations on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became common to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower defaults on the loan and the market price of the property is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the costs, PMI is lucrative for the lender because they obtain the money, and they receive payment if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can refrain from paying PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law states that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, smart home owners can get off the hook ahead of time.
Because it can take countless years to get to the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have secured equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners 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 Daniel Todd Appraisal Services, LLC, we're experts at pinpointing value trends in Bloomington, Monroe County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally remove the PMI with little trouble. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: