Let Brandon Stelling help you decide if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and regular value changes on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower doesn't pay on the loan and the worth of the house is lower than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the losses, PMI is profitable for the lender because they collect the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can refrain from paying PMI
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen home owners can get off the hook a little earlier.
Since it can take countless years to reach the point where the principal is only 20% of the original loan amount, it's essential to know how your home has grown in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate plunging home values, understand that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things cooled off.
The hardest thing for many home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Brandon Stelling, we know when property values have risen or declined. We're experts at identifying value trends in Vermillion, Clay County and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little effort. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: