Let Appraisals Plus help you learn if you can cancel your PMI
When getting a mortgage, a 20% down payment is usually the standard. Because the liability for the lender is oftentimes only the remainder between the home value and the amount due on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changeson the chance that a purchaser defaults.
The market was working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the increased risk of the low down payment with Private Mortgage Insurance or PMI. This supplementary policy protects the lender if a borrower doesn't pay on the loan and the market price of the house is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Separate from a piggyback loan where the lender consumes all the losses, PMI is profitable for the lender because they secure the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid paying PMI
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, keen homeowners can get off the hook sooner than expected.
It can take many years to arrive at the point where the principal is only 20% of the initial amount borrowed, so it's crucial to know how your home has grown in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home might have secured equity before things cooled off, so even when nationwide trends forecast plunging home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our 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 information from an appraiser, the mortgage company will often drop the PMI with little trouble. At which 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: