Let Kent & Associates Appraisal help you discover if you can cancel your PMI
It's generally understood that a 20% down payment is common when getting a mortgage. Since the risk for the lender is oftentimes only the remainder between the home value and the sum due on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and natural value changesin the event a borrower doesn't pay.
During the recent mortgage boom of the last decade, it was common to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the value of the property is less than the balance of the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they collect the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid bearing the expense of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Keen homeowners can get off the hook ahead of time. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take countless years to get to the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home might have secured equity before things simmered down, so even when nationwide trends hint at declining home values, you should understand that real estate is local.
The hardest thing for many homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It's an appraiser's job to recognize the market dynamics of their area. At Kent & Associates Appraisal, we know when property values have risen or declined. We're masters at identifying value trends in Mill Creek, Snohomish County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At which 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: