Let Slater Real Estate Services help you determine if you can cancel your PMI
A 20% down payment is usually the standard when buying a house. Because the liability for the lender is usually only the difference between the home value and the amount remaining on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuationson the chance that a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. This added plan guards the lender if a borrower defaults on the loan and the worth of the house is less than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible. It's lucrative for the lender because they secure the money, and they get the money if the borrower is unable to pay, contradictory to a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, acute homeowners can get off the hook sooner than expected.
Because it can take countless years to get to the point where the principal is just 20% of the original amount borrowed, it's important to know how your home has increased in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends predict declining home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things cooled off.
The difficult thing for almost all homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It's an appraiser's job to know the market dynamics of their area. At Slater Real Estate Services, we're experts at analyzing value trends in Windsor, Weld County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often drop the PMI with little trouble. At that 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: