Have equity in your home? Want a lower payment? An appraisal from Crescent Appraisal Group, Inc. can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is typically the standard. Because the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuationsin the event a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the value of the property is lower than the balance of the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. Different from a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers avoid bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, savvy home owners can get off the hook a little earlier.
It can take countless years to get to the point where the principal is just 20% of the original loan amount, so it's important to know how your home has appreciated in value. After all, any appreciation you've accomplished over time counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify plunging home values, be aware that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have gained equity before things settled down.
The difficult thing for most 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. As appraisers, it's our job to recognize the market dynamics of our area. At Crescent Appraisal Group, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in Metairie, Jefferson County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally drop the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: