Let Tri-County Appraisals help you figure out if you can cancel your PMI
It's widely known that a 20% down payment is the standard when getting a mortgage. Because the risk for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuationsin the event a borrower 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 endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the value of the house is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. It's favorable for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook sooner than expected.
Because it can take countless years to arrive at the point where the principal is just 20% of the original amount borrowed, it's important to know how your home has increased in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be adopting the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends hint at plummeting home values, you should understand that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over 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 Tri-County Appraisals, we're masters at identifying value trends in Loveland, Larimer County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that 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: