Let Appraisals Plus help you decide if you can cancel your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is oftentimes only the remainder between the home value and the amount due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and regular value changes on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the value of the house is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender absorbs all the losses, PMI is advantageous for the lender because they acquire the money, and they get the money 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 can a homeowner keep from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute home owners can get off the hook sooner than expected. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take many years to arrive at the point where the principal is just 20% of the original amount borrowed, it's important to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things cooled off, so even when nationwide trends signify decreasing 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 goes over the 20% point, as it's a hard thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Appraisals Plus, we're masters at recognizing value trends in Philadelphia, Philadelphia County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually eliminate the PMI with little effort. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: