Let Capraro Appraisal Company, Inc. help you learn if you can eliminate your PMI
When purchasing a home, a 20% down payment is usually the standard. Considering the risk for the lender is oftentimes only the difference between the home value and the amount remaining on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value changesin the event a borrower is unable to pay.
The market was working with down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Contradictory to a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they acquire the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law states that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, wise home owners can get off the hook a little earlier.
It can take many years to get to the point where the principal is only 20% of the original amount of the loan, so it's essential to know how your home has increased in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify plummeting home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have gained equity before things calmed down.
The difficult thing for many home owners 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 recognize the market dynamics of our area. At Capraro Appraisal Company, Inc., we know when property values have risen or declined. We're experts at analyzing value trends in North Providence, Providence County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually cancel the PMI with little trouble. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: