Let Property Valuation Group help you decide if you can get rid of your PMI
A 20% down payment is typically the standard when purchasing a home. Considering the risk for the lender is often only the difference between the home value and the amount due on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value fluctuationson the chance that a purchaser doesn't pay.
The market was working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy guards the lender in the event a borrower is unable to pay on the loan and the value of the property is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender consumes all the costs, PMI is beneficial for the lender because they secure the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can refrain from bearing the cost of PMI
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, wise homeowners can get off the hook a little early.
Since it can take many years to get to the point where the principal is just 20% of the original amount borrowed, it's crucial to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends signify decreasing home values, you should realize that real estate is local.
The toughest 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 surely help. It's an appraiser's job to keep up with the market dynamics of their area. At Property Valuation Group, we're masters at pinpointing value trends in Ferndale, Oakland County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually remove the PMI with little trouble. At which 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: