Have equity in your home? Want a lower payment? An appraisal from Serviced Appraisals can help you get rid of your PMI.When getting a mortgage, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuations in the event a borrower defaults.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the value of the house is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they acquire the money, and they get paid if the borrower defaults, as opposed to a piggyback loan where the lender takes in all the losses.
How can homeowners refrain from bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart homeowners can get off the hook beforehand. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Because it can take a significant number of years to get to the point where the principal is just 80% of the original loan amount, it's important to know how your Missouri home has increased in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have secured equity before things cooled off.
The toughest thing for almost all consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Missouri licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At Serviced Appraisals, we're masters at analyzing value trends in our local market, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At that 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year