Let Price Appraisals & Realty, LLC help you learn if you can get rid of your PMI
When buying a house, a 20% down payment is typically the standard. Considering the risk for the lender is generally only the difference between the home value and the sum due on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuationsin the event a borrower defaults.
The market was accepting down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the increased risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan guards the lender in case a borrower defaults on the loan and the market price of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they acquire the money, and they receive payment if the borrower defaults, different from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers avoid bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, smart home owners can get off the hook a little earlier.
It can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, so it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends predict falling home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home may have gained equity before things cooled off.
The toughest thing for most home owners 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 know the market dynamics of their area. At Price Appraisals & Realty, LLC, we're experts at identifying value trends in Lakeway, Travis County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At which 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: