Let Acute Dimensions, LLC help you decide 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 remainder between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and regular value changes on the chance that a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional 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 market price of the home is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI is costly to a borrower. Opposite from a piggyback loan where the lender consumes all the deficits, PMI is money-making for the lender because they collect the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer avoid paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law designates that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, keen home owners can get off the hook a little earlier.
It can take countless years to get to the point where the principal is only 20% of the original amount borrowed, so it's important to know how your home has increased in value. After all, any appreciation you've obtained over time counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends hint at plunging home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things settled down.
The toughest thing for almost all homeowners to understand is just when their home's equity goes over 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 Acute Dimensions, LLC, we're masters at identifying value trends in Chandler, Maricopa County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little trouble. At which 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: