Daniel Todd Appraisal Services, LLC can help you remove your Private Mortgage Insurance
It's generally understood that a 20% down payment is common when getting a mortgage. The lender's liability is often only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and natural value variations in the event a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added policy takes care of the lender in case a borrower doesn't pay on the loan and the worth of the home is lower than what is owed on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible. It's advantageous for the lender because they collect the money, and they get paid if the borrower defaults, contradictory to a piggyback loan where the lender takes in all the costs.
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 keep from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise homeowners can get off the hook a little early. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.
It can take countless years to reach the point where the principal is just 20% of the original amount of the loan, so it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends indicate plunging home values, you should understand that real estate is local.
The difficult thing for almost all home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At Daniel Todd Appraisal Services, LLC, we know when property values have risen or declined. We're experts at pinpointing value trends in Bloomington, Monroe County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: