Let Gary Dregier Appraisals, Inc. help you discover if you can cancel your PMI
When buying a house, a 20% down payment is typically the standard. The lender's liability is oftentimes only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender endure the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan guards the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender absorbs all the damages, PMI is beneficial for the lender because they collect the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent bearing the expense of 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 primary loan amount. Savvy homeowners can get off the hook a little early. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Considering it can take countless years to get to the point where the principal is just 20% of the original amount of the loan, it's essential to know how your home has increased in value. After all, any appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be following the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends signify plunging home values, you should understand that real estate is local.
The difficult thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Gary Dregier Appraisals, Inc., we're experts at pinpointing value trends in Havre de Grace, Harford County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little anxiety. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: