Appraisal Metrics can help you remove your Private Mortgage Insurance
It's generally inferred that a 20% down payment is the standard when purchasing a home. The lender's risk is generally only the remainder between the home value and the sum due on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and regular value variations in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it became common to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender endure the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional policy guards the lender in the event a borrower doesn't pay on the loan and the market price of the house is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they acquire the money, and they receive payment if the borrower doesn't pay, opposite from a piggyback loan where the lender absorbs all the damages.
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?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, keen home owners can get off the hook sooner than expected.
Because it can take many years to get to the point where the principal is just 20% of the original amount borrowed, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends signify declining home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have acquired equity before things cooled off.
The hardest thing for many home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Appraisal Metrics, we know when property values have risen or declined. We're experts at pinpointing value trends in Novi, Oakland County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: