Let Tierney Appraisals help you learn if you can get rid of your PMI
When purchasing a home, a 20% down payment is typically the standard. Because the risk for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% supplies a nice cushion against the charges of foreclosure, selling the home again, and typical value fluctuationson the chance that a borrower defaults.
Banks were working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to endure the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the market price of the property is less than the balance of the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's favorable for the lender because they obtain the money, and they get the money if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can refrain from bearing the expense of PMI
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law pledges that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, smart home owners can get off the hook a little early.
It can take many years to get to the point where the principal is only 20% of the initial loan amount, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've acquired over time counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict plunging home values, realize that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have acquired equity before things simmered down.
The difficult thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Tierney Appraisals, we know when property values have risen or declined. We're masters at recognizing value trends in Beverly, Essex County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: