Let Higdon & Associates help you decide if you can cancel your PMI
A 20% down payment is usually accepted when getting a mortgage. Because the liability for the lender is generally only the difference between the home value and the amount due on the loan, the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and regular value fluctuationson the chance that a purchaser defaults.
During the recent mortgage upturn of the last decade, it was common to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan covers the lender in case a borrower doesn't pay on the loan and the worth of the home is less than the loan balance.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the damages, PMI is advantageous for the lender because they collect the money, and they get paid 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 a home owner prevent paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook a little early.
It can take countless years to arrive at the point where the principal is only 20% of the initial loan amount, so it's crucial to know how your home has grown in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home could have acquired equity before things calmed down, so even when nationwide trends predict falling home values, you should understand that real estate is local.
The toughest thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At Higdon & Associates, we know when property values have risen or declined. We're masters at pinpointing value trends in Antioch, Contra Costa County and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At which 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: