Let Performance Appraisals Inc. help you learn if you can eliminate your PMI
When getting a mortgage, a 20% down payment is usually the standard. The lender's risk is generally only the remainder between the home value and the amount remaining on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and regular value changes in the event a borrower defaults.
During the recent mortgage boom of the last decade, it became common to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower defaults on the loan and the value of the property is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender consumes all the costs, PMI is money-making for the lender because they collect the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid bearing the cost of PMI
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Savvy homeowners can get off the hook a little early. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Since it can take many years to arrive at the point where the principal is just 20% of the original loan amount, it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends signify plunging home values, you should realize that real estate is local.
The difficult thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Performance Appraisals Inc., we know when property values have risen or declined. We're experts at determining value trends in Ponte Vedra Beach, Saint Johns County and surrounding areas. When faced with information from an appraiser, the mortgage company will often remove the PMI with little trouble. At which 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: