Premier Appraisal of SoCal can help you remove your Private Mortgage Insurance
When getting a mortgage, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuations in the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in case a borrower defaults on the loan and the value of the home is less than the loan balance.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they get paid if the borrower is unable to pay, opposite from 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 home buyers can keep from paying PMI
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook ahead of time.
Since it can take many years to reach the point where the principal is only 20% of the original loan amount, it's important to know how your home has increased in value. After all, every bit of appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends forecast plummeting home values, be aware that real estate is local. Your neighborhood might not be heeding the national trends and/or your home might have acquired equity before things simmered down.
The toughest thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At Premier Appraisal of SoCal, we're experts at determining value trends in Mission Viejo, Orange 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 usually drop 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: