Let KEY INSIGHT help you determine if you can cancel your PMI
A 20% down payment is typically the standard when getting a mortgage. Because the risk for the lender is usually only the difference between the home value and the amount remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value variationsin the event a purchaser doesn't pay.
Banks were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to endure the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan covers the lender in case a borrower defaults on the loan and the market price of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible, PMI can be pricey to a borrower. It's beneficial for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, different from a piggyback loan where the lender absorbs all the costs.
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 paying PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook a little earlier.
Considering it can take countless years to get to the point where the principal is only 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends signify plummeting home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have gained equity before things cooled off.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At KEY INSIGHT, we're experts at analyzing value trends in Rhinelander, Oneida County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often drop the PMI with little effort. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: