Have equity in your home? Want a lower payment? An appraisal from O'Brien Appraisal Group, LLC 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 oftentimes only the remainder between the home value and the amount due on the loan, so the 20% supplies a nice cushion against the charges of foreclosure, selling the home again, and regular value fluctuations in the event a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender endure the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan covers the lender if a borrower defaults on the loan and the value 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 compiled into the mortgage monthly payment and frequently isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they collect the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can refrain from bearing the expense of PMI
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, keen homeowners can get off the hook ahead of time.
Considering it can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, it's essential to know how your home has increased in value. After all, every bit of appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends forecast plummeting home values, realize 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 settled down.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At O''Brien Appraisal Group, LLC, we're masters at pinpointing value trends in Danville, Vermilion County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally eliminate the PMI with little effort. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: