Let Property Valuation Group help you figure out if you can cancel your PMI
When buying a house, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and regular value variations on the chance that a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it was widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the market price of the house is less than the loan balance.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's money-making for the lender because they secure the money, and they receive payment if the borrower doesn't pay, opposite from a piggyback loan where the lender absorbs 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 homebuyers avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law stipulates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, wise homeowners can get off the hook ahead of time.
Since it can take countless years to arrive at the point where the principal is just 20% of the original amount of the loan, it's essential to know how your home has increased in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends hint at plunging home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners 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 Property Valuation Group, we're masters at determining value trends in Ferndale, Oakland County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often do away with the PMI with little effort. 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: