Let Real Property Metrics help you figure out if you can eliminate your PMI
It's largely inferred that a 20% down payment is the standard when buying a house. Since the liability for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and regular value fluctuationson the chance that a borrower defaults.
During the recent mortgage boom of the last decade, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This added plan protects the lender if a borrower doesn't pay on the loan and the value of the home is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. It's money-making for the lender because they acquire the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner keep from bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Wise home owners can get off the hook sooner than expected. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, so it's essential to know how your home has grown in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have acquired equity before things cooled off.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Real Property Metrics, we know when property values have risen or declined. We're experts at identifying value trends in Lake Worth, Palm Beach County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally remove the PMI with little effort. 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: