Let KEY INSIGHT help you decide if you can eliminate your PMI
It's typically known that a 20% down payment is the standard when purchasing a home. The lender's liability is generally only the difference between the home value and the amount due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and regular value variations on the chance that a borrower defaults.
The market was working with down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the value of the property is lower than the loan balance.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. Different from a piggyback loan where the lender takes in all the deficits, PMI is advantageous for the lender because they secure the money, and they get the money 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 homeowners avoid paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook ahead of time. The law promises that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has appreciated in value. After all, any appreciation you've acquired over time counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? 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 indicate decreasing home values, you should realize that real estate is local.
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. As appraisers, it's our job to know the market dynamics of our area. At KEY INSIGHT, we're experts at pinpointing value trends in Rhinelander, Oneida County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. 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: