Let J Paul Appraisals help you decide if you can cancel your PMI
It's largely known that a 20% down payment is common when purchasing a home. The lender's liability is generally 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, reselling the home, and typical value variations in the event a purchaser doesn't pay.
Lenders were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to manage the added risk of the low down payment with Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in case a borrower is unable to pay on the loan and the market price of the house is lower than what is owed on the loan.
PMI can be costly 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 takes in all the deficits, PMI is advantageous for the lender because they acquire the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can refrain from bearing the cost of PMI
With the utilization 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 beginning loan amount. Wise home owners can get off the hook a little early. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.
Since it can take many years to arrive at the point where the principal is just 20% of the original amount borrowed, it's necessary to know how your home has grown in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be minding the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends indicate plunging home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to recognize the market dynamics of their area. At J Paul Appraisals Inc, we're experts at identifying value trends in Orlando, Orange County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will most often cancel the PMI with little effort. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: