Have equity in your home? Want a lower payment? An appraisal from Tri-County Appraisals can help you get rid of your PMI.
It's widely understood that a 20% down payment is the standard when getting a mortgage. Since the liability for the lender is usually only the remainder between the home value and the sum due on the loan, the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and typical value variationsin the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender if a borrower defaults on the loan and the market price of the home is less 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 rolled into the mortgage monthly payment and many times isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is lucrative for the lender because they acquire the money, and they get the money 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 can home buyers prevent bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart home owners can get off the hook ahead of time. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, it's important to know how your home has increased in value. After all, every bit of appreciation you've achieved over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends signify plummeting home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have gained equity before things simmered down.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Tri-County Appraisals, we know when property values have risen or declined. We're experts at identifying value trends in Loveland, Larimer County and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually cancel the PMI with little effort. 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: