Let Karen Mann & Associates - Appraisal and Expert Witness Services help you figure out if you can cancel your PMI
It's widely inferred that a 20% down payment is common when purchasing a home. The lender's risk is usually only the difference between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and typical value variations on the chance that a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan guards the lender if a borrower defaults on the loan and the value of the home is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI is pricey to a borrower. It's advantageous for the lender because they acquire the money, and they receive payment if the borrower doesn't pay, unlike a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, savvy home owners can get off the hook a little earlier.
Considering it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's necessary 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 why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict falling home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have secured equity before things calmed down.
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 keep up with the market dynamics of our area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we're experts at pinpointing value trends in Discovery Bay, Contra Costa County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often drop the PMI with little anxiety. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: