Let LHC Appraisals help you learn if you can cancel your PMI
A 20% down payment is typically accepted when getting a mortgage. The lender's liability is generally only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuations on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower is unable to pay on the loan and the value of the property is lower than what is owed on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. It's lucrative for the lender because they collect the money, and they receive payment if the borrower defaults, opposite from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart homeowners can get off the hook a little earlier. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent.
It can take many years to get to the point where the principal is just 20% of the original amount borrowed, so it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends predict falling home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home may have secured equity before things cooled off.
The difficult thing for almost all homeowners 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 recognize the market dynamics of our area. At LHC Appraisals, we're masters at pinpointing value trends in Denton, Denton County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally remove the PMI with little anxiety. At which 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: