Have equity in your home? Want a lower payment? An appraisal from Deer Creek Appraisals can help you get rid of your PMI.
A 20% down payment is typically the standard when getting a mortgage. The lender's liability is often only the remainder between the home value and the amount due on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary policy protects the lender in case a borrower defaults on the loan and the value of the house is less than what the borrower still owes on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is lucrative for the lender because they collect the money, and they receive payment if the borrower defaults.
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 cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, savvy homeowners can get off the hook ahead of time.
It can take countless years to get to the point where the principal is only 20% of the original loan amount, so it's important to know how your home has increased in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify plummeting home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have gained equity before things simmered down.
The hardest thing for many homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Deer Creek Appraisals, we're experts at analyzing value trends in Denver, Jefferson 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 most often remove 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: