Let South Shore Appraisals help you determine if you can cancel your PMI
A 20% down payment is typically accepted when getting a mortgage. Considering the liability for the lender is generally only the remainder between the home value and the amount remaining on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and regular value variationson the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the house is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they obtain the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can keep from paying PMI
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Savvy homeowners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be abandoned 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 original amount borrowed, it's necessary to know how your home has grown in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So why pay 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 might have secured equity before things calmed down, so even when nationwide trends hint at declining home values, you should realize that real estate is local.
The difficult thing for many home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At South Shore Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Schererville, Lake County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: