Let Hiland Appraisals, LLC help you discover if you can cancel your PMI.
When buying a house, a 20% down payment is usually the standard. The lender's liability is usually only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and typical value fluctuations in the event a purchaser doesn't pay.
The market was working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the market price of the property is less than the balance of the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the damages, PMI is favorable for the lender because they acquire 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 can home owners prevent bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, savvy home owners can get off the hook a little earlier.
Since it can take many years to reach the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has increased in value. After all, every bit of appreciation you've acquired over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends indicate plummeting home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have gained equity before things settled down.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At Hiland Appraisals, LLC, we know when property values have risen or declined. We're masters at pinpointing value trends in Lansing, Ashe County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often do away with the PMI with little trouble. At which 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: