Let help you learn if you can eliminate your PMI
It's largely inferred that a 20% down payment is accepted when purchasing a home. The lender's liability is usually only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and typical value changes in the event a borrower is unable to pay.
The market was accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to manage the additional risk of the low down payment with Private Mortgage Insurance or PMI. This supplementary policy covers the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners keep from paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart home owners can get off the hook sooner than expected. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
Because it can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have secured equity before things calmed down, so even when nationwide trends predict declining home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At , we know when property values have risen or declined. We're experts at analyzing value trends in , Kitsap County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally eliminate the PMI with little effort. At that 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: