Let Edwards Appraisal Service, Inc. help you discover if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically the standard. Because the risk for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and typical value changeson the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became common to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the market price of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they obtain the money, and they receive payment if the borrower defaults, contradictory to a piggyback loan where the lender takes in all the deficits.
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 expense of PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise home owners can get off the hook sooner than expected.
It can take many years to get to the point where the principal is only 20% of the initial amount of the loan, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be following the national trends and/or your home might have acquired equity before things calmed down, so even when nationwide trends predict decreasing home values, you should realize that real estate is local.
The difficult thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At Edwards Appraisal Service, Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Goldsboro, Wayne County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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