Let Abandy & Associates Appraisal Services help you discover if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically the standard. The lender's liability is usually only the difference between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and regular value changes in the event a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender endure the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan protects the lender in case a borrower is unable to pay on the loan and the value of the house is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be expensive to a borrower. It's advantageous for the lender because they obtain the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners prevent paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law pledges that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take many years to get to the point where the principal is only 20% of the original amount of the loan, so it's important to know how your home has grown in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home could have secured equity before things calmed down, so even when nationwide trends forecast plummeting home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to know the market dynamics of their area. At Abandy & Associates Appraisal Services, we're experts at determining value trends in Chino Hills, San Bernardino 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 generally cancel the PMI with little anxiety. At which 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: