Let Watson Appraisal Services, Inc help you decide if you can cancel your PMI
A 20% down payment is usually the standard when buying a house. Since the risk for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changeson the chance that a borrower is unable to pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the market price of the home is lower than the loan balance.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the losses, PMI is money-making for the lender because they obtain the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can prevent bearing the expense of PMI
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise homeowners can get off the hook ahead of time. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, so it's necessary to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends predict falling home values, realize that real estate is local. Your neighborhood may not be minding the national trends and/or your home might have acquired equity before things calmed down.
The difficult thing for many home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Watson Appraisal Services, Inc, we're masters at determining value trends in Raleigh, Wake 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 which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: