Let James Earp Appraisal Service help you decide if you can cancel your PMI
A 20% down payment is typically accepted when getting a mortgage. Because the risk for the lender is usually only the difference between the home value and the sum due on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuationson the chance that a purchaser doesn't pay.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the worth of the home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be pricey to a borrower. Opposite from a piggyback loan where the lender absorbs all the deficits, PMI is money-making 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 a home owner avoid paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Keen homeowners can get off the hook ahead of time. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
Because it can take countless years to get to the point where the principal is just 20% of the original amount of the loan, it's essential to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home could have acquired equity before things cooled off, so even when nationwide trends forecast plummeting home values, you should understand that real estate is local.
The toughest thing for most home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to keep up with the market dynamics of their area. At James Earp Appraisal Service, we know when property values have risen or declined. We're masters at analyzing value trends in Raleigh, Wake County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: