Let help you determine if you can cancel your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and regular value variations on the chance that a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan protects the lender if a borrower defaults on the loan and the value of the property is less than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible. It's lucrative for the lender because they acquire the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can prevent bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook sooner than expected.
Considering it can take many years to get to the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends hint at plummeting home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have acquired equity before things settled down.
The hardest thing for many home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At , we're masters at identifying value trends in , Clark County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually drop the PMI with little effort. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: