Let Premier Appraisal of SoCal help you learn if you can cancel your PMI
A 20% down payment is usually the standard when getting a mortgage. The lender's liability is often only the difference between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and natural value variations in the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan covers the lender if a borrower doesn't pay on the loan and the worth of the house is lower than what the borrower still owes on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. It's profitable for the lender because they acquire the money, and they receive payment if the borrower defaults, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners refrain from bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook ahead of time. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take many years to get to the point where the principal is just 20% of the original amount of the loan, it's crucial to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends predict declining home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Premier Appraisal of SoCal, we know when property values have risen or declined. We're masters at identifying value trends in Mission Viejo, Orange County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually remove the PMI with little trouble. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: