Let REVARI (Real Estate Valuation and Research Inc.) help you decide if you can cancel your PMI
When getting a mortgage, a 20% down payment is typically the standard. The lender's risk is oftentimes only the difference between the home value and the sum due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser is unable to pay.
Banks were working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added policy protects the lender if a borrower defaults on the loan and the value of the house is lower than what is owed on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. It's money-making for the lender because they obtain the money, and they get paid if the borrower defaults, opposite from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can prevent bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Acute home owners can get off the hook beforehand. The law pledges that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
It can take many years to get to the point where the principal is only 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends predict plunging 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 settled down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above 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 REVARI (Real Estate Valuation and Research Inc.), we know when property values have risen or declined. We're masters at determining value trends in Claremont, Sullivan County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally eliminate the PMI with little effort. At that time, the home owner can relish the savings from that point on.
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