Let Baker Appraisal Services, Inc. help you learn if you can cancel your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and typical value variations in the event a borrower defaults.
Banks were working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary plan guards the lender in case a borrower is unable to pay on the loan and the worth of the property is less 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 oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Different from a piggyback loan where the lender consumes all the costs, PMI is advantageous for the lender because they collect the money, and they get the money 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 homebuyers can keep from bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law designates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, keen home owners can get off the hook sooner than expected.
It can take countless years to get to the point where the principal is just 20% of the initial loan amount, so it's necessary to know how your home has grown in value. After all, any appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be minding the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends indicate decreasing home values, you should understand that real estate is local.
The difficult thing for almost all 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 know the market dynamics of our area. At Baker Appraisal Services, Inc., we're experts at determining value trends in Camden, Kent County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At which 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: