Let help you decide if you can eliminate your PMI
A 20% down payment is typically accepted when getting a mortgage. Because the risk for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value changeson the chance that a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. 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 in case a borrower is unable to pay on the loan and the market price of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can avoid bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute home owners can get off the hook sooner than expected.
It can take many years to reach the point where the principal is just 20% of the initial loan amount, so it's essential to know how your home has increased in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be reflecting the national trends and/or your home might have secured equity before things cooled off, 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 homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At , we're experts at pinpointing value trends in , Baltimore 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 most often remove the PMI with little effort. 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: