Let Tierney Appraisals help you discover if you can get rid of your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is often only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value variations in the event a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in the event a borrower defaults on the loan and the worth of the home is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. It's lucrative for the lender because they secure the money, and they get paid if the borrower is unable to pay, contradictory to a piggyback loan where the lender consumes all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers avoid bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Keen home owners can get off the hook a little early. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Because it can take many years to reach the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has grown in value. After all, all of the appreciation you've gained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends indicate falling home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things settled down.
The toughest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to recognize the market dynamics of our area. At Tierney Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Beverly, Essex County and surrounding areas. When faced with data from an appraiser, the mortgage company will often drop 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: