Have equity in your home? Want a lower payment? An appraisal from Shamrock Appraisals, Inc. can help you get rid of your PMI.
It's typically inferred that a 20% down payment is common when getting a mortgage. The lender's risk is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser is unable to pay.
Banks were taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the worth of the home is less than what is owed on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. Contradictory to a piggyback loan where the lender consumes all the damages, PMI is favorable for the lender because they secure the money, and they get the money if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen home owners can get off the hook a little earlier. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take many years to reach the point where the principal is just 20% of the initial amount borrowed, it's important to know how your home has increased in value. After all, all of the appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
The hardest thing for most home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Shamrock Appraisals, Inc., we're experts at recognizing value trends in Tuscaloosa, Tuscaloosa County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: