Let Streamline Appraisals/Tim Taylor Realty help you figure out if you can cancel your PMI
A 20% down payment is typically the standard when buying a house. The lender's risk is often only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and regular value variations on the chance that a borrower doesn't pay.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to endure the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan guards the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than what the borrower still owes on the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they collect the money, and they get paid 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 can homeowners prevent paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise homeowners can get off the hook beforehand. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Because it can take many years to reach 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, every bit of appreciation you've acquired over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends hint at declining home values, you should understand that real estate is local.
The hardest thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Streamline Appraisals/Tim Taylor Realty, we're experts at pinpointing value trends in High Point, Guilford County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little effort. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: