Let REID E. CHOATE & ASSOCIATES, LLC help you figure out if you can get rid of your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is usually only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value variations on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy guards the lender if a borrower is unable to pay on the loan and the value of the house is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible, PMI is pricey to a borrower. Opposite from a piggyback loan where the lender consumes all the damages, PMI is lucrative for the lender because they secure the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, acute home owners can get off the hook a little early.
It can take many years to reach the point where the principal is only 20% of the original loan amount, so it's necessary to know how your home has grown in value. After all, every bit of appreciation you've acquired over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends forecast plunging 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 difficult thing to know. As appraisers, it's our job to understand the market dynamics of our area. At REID E. CHOATE & ASSOCIATES, LLC, we're masters at determining value trends in Pahoa, Hawaii 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 cancel the PMI with little anxiety. At which 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: