Have equity in your home? Want a lower payment? An appraisal from Appraisal Metrics can help you get rid of your PMI.
A 20% down payment is usually the standard when getting a mortgage. The lender's liability is usually only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser doesn't pay.
The market was accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the worth of the home is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they obtain the money, and they get paid if the borrower is unable to pay, different from 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 homeowners can refrain from paying PMI
With the employment 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 reaches 78 percent of the initial loan amount. Wise homeowners can get off the hook beforehand. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take many years to get to the point where the principal is just 20% of the initial amount borrowed, so it's crucial to know how your home has grown in value. After all, all of the appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends forecast decreasing home values, understand that real estate is local. Your neighborhood might not be adopting the national trends and/or your home could have secured equity before things cooled off.
The difficult thing for almost all homeowners to know 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 understand the market dynamics of our area. At Appraisal Metrics, we're experts at determining value trends in Novi, Oakland County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: