Let Barnstable/Plymouth Appraisal Services help you discover if you can cancel your PMI
A 20% down payment is typically accepted when purchasing a home. Considering the liability for the lender is often only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and natural value variationsin the event a purchaser doesn't pay.
Lenders were accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional plan protects the lender in the event a borrower doesn't pay on the loan and the value of the home is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender absorbs all the losses, PMI is advantageous for the lender because they acquire 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 home buyers can keep from bearing the expense of PMI
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, savvy home owners can get off the hook ahead of time.
Since it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished 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? Even when nationwide trends forecast decreasing home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have secured equity before things cooled off.
The hardest thing for most homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to know the market dynamics of their area. At Barnstable/Plymouth Appraisal Services, we're masters at analyzing value trends in Buzzards Bay, Barnstable County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually cancel the PMI with little effort. 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: