Have equity in your home? Want a lower payment? An appraisal from Appraisals Plus can help you get rid of your PMI.
It's widely known that a 20% down payment is common when getting a mortgage. Because the risk for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value changesin the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan guards the lender if a borrower is unable to pay on the loan and the market price of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they collect the money, and they get the money if the borrower doesn't pay, unlike a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise home owners can get off the hook a little earlier.
Considering it can take countless years to arrive at the point where the principal is just 20% of the original amount borrowed, it's crucial to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards removing 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 adhering to the national trends and/or your home might have acquired equity before things cooled off, so even when nationwide trends indicate plummeting home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Appraisals Plus, we're experts at determining value trends in Philadelphia, Philadelphia 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 most often drop the PMI with little trouble. 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: