Let Blue Water Appraisals help you determine if you can get rid of your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's liability is often only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and natural value variations on the chance that a borrower defaults.
Banks were taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the increased risk of the small 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 house is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Separate from a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they secure 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 buyers can prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Savvy homeowners can get off the hook ahead of time. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent.
Because it can take countless years to reach the point where the principal is just 20% of the initial amount of the loan, it's important to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends predict plummeting home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have gained equity before things settled down.
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. As appraisers, it's our job to know the market dynamics of our area. At Blue Water Appraisals, we're masters at determining value trends in Cape Coral, Lee County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. 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: