Let R.M. Conrad & Associates, Inc. help you learn if you can cancel your PMI
When buying a house, a 20% down payment is usually the standard. The lender's liability is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and regular value variations in the event a borrower doesn't pay.
During the recent mortgage boom of the last decade, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional policy guards the lender in the event a borrower is unable to pay on the loan and the market price of the home is less than the balance of the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. Contradictory to a piggyback loan where the lender consumes all the damages, PMI is money-making 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 can a homeowner prevent bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law guarantees that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, keen 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 initial amount borrowed, so it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends forecast falling home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At R.M. Conrad & Associates, Inc., we're masters at recognizing value trends in West Chester, Chester County 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 effort. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: