Quinsigamond Appraisal Services can help you remove your Private Mortgage Insurance
It's generally known that a 20% down payment is common when purchasing a home. The lender's risk is oftentimes only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and natural value changes in the event a borrower is unable to pay.
Banks were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower is unable to pay on the loan and the value of the home is lower than what the borrower still owes on the loan.
PMI is pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's lucrative for the lender because they acquire the money, and they get paid if the borrower is unable to pay, opposite from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law states that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, savvy home owners can get off the hook sooner than expected.
It can take many years to reach the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends indicate declining home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home could have secured equity before things cooled off.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It's an appraiser's job to know the market dynamics of their area. At Quinsigamond Appraisal Services, we're masters at recognizing value trends in Worcester, Worcester County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: