Let Pierce Appraisal help you determine if you can cancel your PMI
A 20% down payment is typically accepted when purchasing a home. The lender's risk is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value changes in the event a purchaser doesn't pay.
Lenders were accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional policy guards the lender in the event a borrower doesn't pay on the loan and the value of the home is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be costly to a borrower. Contradictory to a piggyback loan where the lender takes in all the losses, PMI is lucrative for the lender because they secure the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise home owners can get off the hook beforehand. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the original loan amount, so it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have secured equity before things settled down.
The difficult thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to keep up with the market dynamics of their area. At Pierce Appraisal, we're masters at pinpointing value trends in Gering, Scotts Bluff County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually drop 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: