Let Higdon & Associates help you learn if you can get rid of your PMI
A 20% down payment is usually accepted when getting a mortgage. Considering the liability for the lender is oftentimes only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value fluctuationsin the event a purchaser defaults.
The market was taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the home is less than what the borrower still owes on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the losses, PMI is advantageous for the lender because they acquire the money, and they get the money 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 buyer refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook sooner than expected.
It can take countless years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends signify falling home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Higdon & Associates, we know when property values have risen or declined. We're masters at recognizing value trends in Antioch, Contra Costa County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often remove the PMI with little trouble. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: