Have equity in your home? Want a lower payment? An appraisal from Astute Appraisals, Inc. can help you get rid of your PMI.
A 20% down payment is usually accepted when purchasing a home. Considering the liability for the lender is generally only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and typical value variationsin the event a borrower doesn't pay.
Lenders were accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan covers the lender if a borrower defaults on the loan and the value of the property is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI can be pricey to a borrower. Separate from a piggyback loan where the lender takes in all the costs, PMI is advantageous for the lender because they secure the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can avoid bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take countless years to get to the point where the principal is only 20% of the initial loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends predict decreasing home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things calmed down.
The toughest thing for almost all home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Astute Appraisals, Inc., we're experts at determining value trends in Columbia, Howard County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually remove the PMI with little trouble. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: