KEY INSIGHT can help you remove your Private Mortgage Insurance
It's typically understood that a 20% down payment is common when purchasing a home. The lender's risk is usually only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value changes in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the worth of the home is less than the balance of the loan.
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. Opposite from a piggyback loan where the lender absorbs all the costs, PMI is money-making for the lender because they acquire the money, and they get paid 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 can a homeowner keep from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Savvy home owners can get off the hook a little early. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent.
Considering it can take countless years to reach the point where the principal is just 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 time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends predict plummeting home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things settled down.
The hardest thing for almost all homeowners to understand 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 keep up with the market dynamics of our area. At KEY INSIGHT, we're experts at determining value trends in Rhinelander, Oneida 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 often cancel 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: