Tri-County Appraisals can help you remove your Private Mortgage Insurance
A 20% down payment is typically accepted when buying a house. The lender's risk is oftentimes only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser doesn't pay.
The market was taking down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added plan guards the lender in case a borrower is unable to pay on the loan and the value of the home is lower than what is owed on the loan.
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, PMI is costly to a borrower. Contradictory to a piggyback loan where the lender absorbs all the costs, PMI is profitable for the lender because they collect 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 homeowner prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy homeowners can get off the hook a little earlier. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take many years to get to the point where the principal is only 20% of the original amount of the loan, so it's essential to know how your home has grown in value. After all, all of the appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home might have secured equity before things cooled off, so even when nationwide trends indicate plunging home values, you should understand that real estate is local.
The hardest thing for most home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Tri-County Appraisals, we're masters at recognizing value trends in Loveland, Larimer 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 eliminate the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: