Let Price Appraisals & Realty, LLC help you determine if you can get rid of your PMI
It's typically understood that a 20% down payment is the standard when getting a mortgage. The lender's liability is generally only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender endure the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. Unlike a piggyback loan where the lender consumes all the costs, PMI is lucrative for the lender because they collect the money, and they receive payment 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 keep from paying PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, keen home owners can get off the hook sooner than expected.
Since it can take many years to reach the point where the principal is just 20% of the original amount of the loan, it's important to know how your home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home could have acquired equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The toughest thing for many homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Price Appraisals & Realty, LLC, we're masters at analyzing value trends in Lakeway, Travis County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little effort. 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: