Joseph Mier & Associates can help you remove your Private Mortgage Insurance
It's largely known that a 20% down payment is the standard when purchasing a home. Because the risk for the lender is generally only the difference between the home value and the sum due on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changes in the event a borrower is unable to pay.
During the recent mortgage upturn of the last decade, it was widespread to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to manage the increased risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary plan protects the lender if a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan.
Since the $40-$50 a month per 100,000 borrowed is compiled into the mortgage payment and generally isn't even tax deductible, PMI can be pricey to a borrower. Different from a piggyback loan where the lender consumes all the damages, PMI is beneficial for the lender because they collect the money, and they get the money if the borrower is unable to pay.
How buyers can prevent paying PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Wise homeowners can get off the hook sooner than expected. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
Since it can take countless years to get to 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, all of the appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be heeding the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The hardest thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. At Joseph Mier & Associates, we're experts at identifying value trends in on the Northshore and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often cancel the PMI with little trouble. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: