Have equity in your home? Want a lower payment? An appraisal from Baker Appraisal Services, Inc. can help you get rid of your PMI.
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is often only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and regular value changes in the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower defaults on the loan and the value of the home is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI can be costly to a borrower. Different from a piggyback loan where the lender consumes all the costs, PMI is favorable for the lender because they obtain 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 home buyers can avoid paying PMI
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart 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 initial amount borrowed, it's necessary to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends predict plummeting home values, realize that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have acquired equity before things calmed down.
The toughest thing for many homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Baker Appraisal Services, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in Camden, Kent County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: