Let Advantage 1 Appraisals help you learn if you can cancel your PMI
When getting a mortgage, a 20% down payment is usually the standard. Since the liability for the lender is usually only the remainder between the home value and the amount due on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value changeson the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders commanding 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 policy covers the lender in the event a borrower doesn't pay on the loan and the worth of the property is lower than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's lucrative for the lender because they secure the money, and they get the money if the borrower is unable to pay, unlike 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 home owners can avoid bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, savvy home owners can get off the hook a little early.
It can take many years to arrive at the point where the principal is just 20% of the original loan amount, so it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home could have secured equity before things calmed down, so even when nationwide trends forecast plummeting home values, you should realize that real estate is local.
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 hard thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Advantage 1 Appraisals, we're masters at recognizing value trends in Aurora, Dearborn 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 usually do away with the PMI with little effort. At that 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: