Let Tri-County Appraisals help you learn if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. Since the liability for the lender is generally only the difference between the home value and the amount due on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value changeson the chance that a purchaser defaults.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan takes care of the lender if a borrower doesn't pay on the loan and the value of the property is lower than the balance of the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Different from a piggyback loan where the lender consumes all the losses, PMI is favorable for the lender because they acquire the money, and they receive payment 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 buyers can prevent paying PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law promises that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, savvy home owners can get off the hook ahead of time.
Since it can take many years to get to the point where the principal is just 20% of the original loan amount, it's necessary to know how your home has increased in value. After all, any appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends signify declining home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have gained equity before things simmered down.
The toughest thing for many home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Tri-County Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Loveland, Larimer County and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: