Let R.M. Conrad & Associates, Inc. help you decide if you can get rid of your PMI
When getting a mortgage, a 20% down payment is typically the standard. The lender's liability is often only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and natural value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the last decade, it was widespread to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to handle the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the worth of the property is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they collect the money, and they get the money if the borrower doesn't pay, unlike a piggyback loan where the lender consumes all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, keen home owners can get off the hook ahead of time.
It can take many years to get to the point where the principal is just 20% of the initial amount of the loan, so it's necessary to know how your home has increased 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% threshold? Your neighborhood may not be following the national trends and/or your home might have acquired equity before things settled down, so even when nationwide trends predict falling home values, you should understand that real estate is local.
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. It is an appraiser's job to keep up with the market dynamics of their area. At R.M. Conrad & Associates, Inc., we're masters at analyzing 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 eliminate the PMI with little anxiety. At which 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: