Let J & A Appraisals, LLC help you learn if you can cancel your PMI
A 20% down payment is usually the standard when purchasing a home. The lender's risk is generally only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and natural value variations in the event a purchaser doesn't pay.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the value of the property is less than the loan balance.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the losses, PMI is lucrative for the lender because they collect the money, and they get paid 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 home buyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, keen home owners can get off the hook sooner than expected.
Since it can take countless years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's essential to know how your home has appreciated in value. After all, any appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not be heeding the national trends and/or your home could have gained equity before things calmed down, so even when nationwide trends indicate falling home values, you should understand that real estate is local.
The toughest thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At J & A Appraisals, LLC, we know when property values have risen or declined. We're masters at pinpointing value trends in Aurora, Arapahoe County and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often remove the PMI with little effort. 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: