Let Mitchell Appraisals help you discover if you can eliminate your PMI
A 20% down payment is usually accepted when purchasing a home. The lender's risk is generally only the remainder between the home value and the sum remaining on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuations on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added policy guards the lender if a borrower defaults on the loan and the worth 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 often isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower defaults, separate from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner prevent bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Smart homeowners can get off the hook a little early. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent.
It can take countless years to reach the point where the principal is just 20% of the initial amount borrowed, so it's crucial to know how your home has appreciated in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate plunging home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have acquired equity before things calmed down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At Mitchell Appraisals, we're experts at determining value trends in MILTON, Santa Rosa County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often drop the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: