Let Quinsigamond Appraisal Services help you figure out if you can eliminate your PMI
When getting a mortgage, a 20% down payment is usually the standard. The lender's risk is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan protects the lender in case a borrower defaults on the loan and the value of the property is less than the loan balance.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they collect the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers avoid bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise homeowners can get off the hook sooner than expected. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
It can take many years to get to the point where the principal is just 20% of the original amount of the loan, so it's necessary 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 why pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should understand that real estate is local.
The difficult thing for many homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Quinsigamond Appraisal Services, we know when property values have risen or declined. We're experts at recognizing value trends in Worcester, Worcester County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often drop 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: