Let Graham Appraisal help you discover if you can cancel your PMI
It's generally understood that a 20% down payment is the standard when purchasing a home. The lender's risk is often only the difference between the home value and the amount due on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and natural value fluctuations on the chance that a purchaser is unable to pay.
The market was working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to endure the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the value of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's advantageous for the lender because they collect the money, and they receive payment if the borrower is unable to pay, different from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner keep from bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Acute home owners can get off the hook ahead of time. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
Because it can take countless years to reach the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify plummeting home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have acquired equity before things calmed down.
The toughest thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Graham Appraisal, we're experts at pinpointing value trends in Glasgow, Barren County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: