Let Michael Church Appraisals help you learn if you can cancel your PMI
When purchasing a home, a 20% down payment is usually the standard. Considering the liability for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and typical value fluctuationson the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became widespread to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to endure the added risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary policy covers the lender in the event a borrower is unable to pay on the loan and the market price of the property is lower than what the borrower still owes on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible. Opposite from a piggyback loan where the lender consumes all the damages, PMI is beneficial for the lender because they obtain the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise home owners can get off the hook ahead of time.
Considering it can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The difficult thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to keep up with the market dynamics of their area. At Michael Church Appraisals, we're masters at determining value trends in Naples, Collier County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually cancel 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: