Let Alaska Real Estate Appraisal help you learn if you can get rid of your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's liability is often only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and regular value variations in the event a purchaser doesn't pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional policy covers the lender if a borrower defaults on the loan and the value of the property is less than the loan balance.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. It's profitable for the lender because they secure the money, and they get paid if the borrower defaults, separate from 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 homebuyers can refrain from 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 initial loan amount. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, keen homeowners can get off the hook a little earlier.
It can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, so it's important to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at plummeting home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have secured equity before things cooled off.
The difficult thing for most homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Alaska Real Estate Appraisal, we know when property values have risen or declined. We're experts at recognizing value trends in Palmer, Matanuska Susitna Borough and surrounding areas. Faced with data from an appraiser, the mortgage company will often cancel the PMI with little effort. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: