Let Southern Valuation Services, Inc help you discover if you can cancel your PMI
A 20% down payment is typically the standard when getting a mortgage. The lender's risk is usually 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 typical value variations in the event a borrower is unable to pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan covers the lender in case a borrower defaults on the loan and the worth of the home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. It's money-making for the lender because they acquire the money, and they get paid if the borrower defaults, opposite from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner prevent bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart homeowners can get off the hook sooner than expected. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is just 20% of the original loan amount, so it's essential to know how your home has increased in value. After all, every bit of appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan 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 settled down, so even when nationwide trends signify plunging home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At Southern Valuation Services, Inc, we know when property values have risen or declined. We're experts at analyzing value trends in Austin and surrounding areas. When faced with figures from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: