Let LHC Appraisals help you learn if you can cancel your PMI
It's largely known that a 20% down payment is accepted when purchasing a home. Since the liability for the lender is generally only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuationson the chance that a borrower is unable to pay.
Banks were accepting down payments down to 10, 5 and even 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 solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the house is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender takes in all the damages, PMI is advantageous for the lender because they secure the money, and they get the money 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 paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, smart home owners can get off the hook a little early.
Since it can take many years to get to the point where the principal is only 20% of the original amount borrowed, it's important to know how your home has appreciated in value. After all, every bit of appreciation you've achieved over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends predict decreasing home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At LHC Appraisals, we know when property values have risen or declined. We're masters at recognizing value trends in Denton, Denton County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: