Appraisal Metrics can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is typically the standard. Since the risk for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and natural value fluctuationsin the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the value of the home is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be costly to a borrower. It's beneficial for the lender because they collect the money, and they get paid if the borrower doesn't pay, unlike 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 home owners avoid paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise homeowners can get off the hook a little earlier.
Because it can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, it's important to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends predict plummeting home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have gained equity before things cooled off.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Appraisal Metrics, we know when property values have risen or declined. We're experts at recognizing value trends in Novi, Oakland County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often remove 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: