Barnstable/Plymouth Appraisal Services can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when purchasing a home. The lender's risk is usually only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value changes on the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible. It's money-making for the lender because they acquire the money, and they get paid if the borrower defaults, contradictory to a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers keep from 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 reaches 78 percent of the primary loan amount. Smart homeowners can get off the hook beforehand. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take many years to get to the point where the principal is only 20% of the original amount borrowed, it's necessary to know how your home has increased in value. After all, any appreciation you've accomplished over time counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends predict 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 goes over the 20% point, as it's a tough thing to know. It's an appraiser's job to understand the market dynamics of their area. At Barnstable/Plymouth Appraisal Services, we know when property values have risen or declined. We're experts at determining value trends in Buzzards Bay, Barnstable County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally do away with the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: