Let Blue Water Appraisals help you figure out 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 remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value changes in the event a borrower is unable to pay.
During the recent mortgage upturn of the last decade, it was common to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender consumes 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 a homebuyer prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook a little earlier.
It can take countless years to get to the point where the principal is just 20% of the original loan amount, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Even when nationwide trends predict decreasing home values, understand that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have gained equity before things settled down.
The hardest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Blue Water Appraisals, we're masters at pinpointing value trends in Cape Coral, Lee County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally remove the PMI with little effort. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: