Let Northern Arizona Appraisal, Inc. help you learn if you can get rid of your PMI
A 20% down payment is typically accepted when purchasing a home. Since the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuationson the chance that a purchaser is unable to pay.
The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan guards the lender in the event a borrower is unable to pay on the loan and the market price of the house is less than what is owed 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 can be costly to a borrower. Separate from a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they collect the money, and they receive payment 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 a homeowner keep from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, smart homeowners can get off the hook a little early.
It can take countless years to arrive at the point where the principal is just 20% of the original loan amount, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've gained over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends hint at falling home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Northern Arizona Appraisal, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in Phoenix, Maricopa County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often remove 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: