Let Binder and Associates (360) 573-8114 help you learn if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. Considering the risk for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and regular value changesin the event a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan protects the lender in the event a borrower is unable to pay on the loan and the value of the home is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they obtain the money, and they get paid if the borrower doesn't pay, opposite from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, smart home owners can get off the hook ahead of time.
Because it can take many years to reach the point where the principal is just 20% of the initial loan amount, it's important to know how your home has grown in value. After all, every bit of appreciation you've achieved over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends hint at plunging home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have gained equity before things simmered 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 understand the market dynamics of our area. At Binder and Associates (360) 573-8114, we know when property values have risen or declined. We're experts at pinpointing value trends in Ridgefield, Clark County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. At that 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: