Let Tri-County Appraisals help you discover if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. Considering the liability for the lender is generally only the difference between the home value and the sum remaining on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuationsin the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the added risk of the minimal down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in the event a borrower doesn't pay on the loan and the worth of the home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, keen homeowners can get off the hook a little earlier.
It can take many years to arrive at the point where the principal is just 20% of the original amount borrowed, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've obtained over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends forecast plummeting home values, realize that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things cooled off.
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. It is an appraiser's job to keep up with the market dynamics of their area. At Tri-County Appraisals, we're masters at analyzing value trends in Loveland, Larimer 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 cancel the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: