Let Crescent Appraisal Group, Inc. help you decide if you can get rid of your PMI
It's generally understood that a 20% down payment is the standard when purchasing a home. The lender's risk is usually only the difference between the home value and the amount due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value variations on the chance that a borrower doesn't pay.
Banks were 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 additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the worth of the property is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender takes in all the deficits, PMI is beneficial 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 buyers keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Savvy home owners can get off the hook a little early. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Because it can take many years to arrive at the point where the principal is just 20% of the initial amount borrowed, it's essential to know how your home has grown in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things calmed down, so even when nationwide trends predict decreasing home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners 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 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 identifying value trends in Metairie, Jefferson County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: