Let Premier Appraisal of Southern California help you discover if you can cancel your PMI
It's widely inferred that a 20% down payment is accepted when buying a house. Considering the risk for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value fluctuationson the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the market price of the home is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible, PMI is pricey to a borrower. Opposite from a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they collect the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer refrain from paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook ahead of time. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Considering it can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The toughest thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their area. At Premier Appraisal of Southern California, we're masters at determining value trends in Mission Viejo, Orange County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that 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: