Have equity in your home? Want a lower payment? An appraisal from Shamrock Appraisals, Inc. can help you get rid of your PMI.
When purchasing a home, a 20% down payment is typically the standard. Considering the risk for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and typical value changeson the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional policy takes care of the lender if a borrower doesn't pay on the loan and the value of the house is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. Contradictory to a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they collect the money, and they receive payment 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 home owners prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise home owners can get off the hook sooner than expected. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take many years to get to the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home may have secured equity before things simmered down, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Shamrock Appraisals, Inc., we're experts at pinpointing value trends in Tuscaloosa, Tuscaloosa County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: