Let Mitchell Appraisals help you determine if you can cancel your PMI
A 20% down payment is typically the standard when getting a mortgage. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and natural value variations in the event a purchaser defaults.
Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the value of the property is lower than what is owed on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. Opposite from a piggyback loan where the lender consumes all the costs, PMI is money-making for the lender because they acquire the money, and they get the money 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 home owners can refrain from bearing the expense of PMI
With the employment 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 original loan amount. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook a little early.
Because it can take many years to arrive at the point where the principal is only 20% of the initial loan amount, it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not be minding the national trends and/or your home may have gained equity before things calmed down, so even when nationwide trends predict plunging home values, you should realize that real estate is local.
The hardest 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 certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Mitchell Appraisals, we know when property values have risen or declined. We're experts at pinpointing value trends in Navarre, Santa Rosa County and surrounding areas. When faced with data from an appraiser, the mortgage company will often eliminate the PMI with little effort. At that 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: