Let Allatoona Appraisal help you figure out if you can cancel your PMI
It's generally understood that a 20% down payment is the standard when buying a house. Because the liability for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the expenses of foreclosure, reselling the home, and typical value variationsin the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional policy covers the lender if a borrower doesn't pay on the loan and the worth of the home is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible. It's money-making for the lender because they acquire the money, and they get paid if the borrower doesn't pay, contradictory to a piggyback loan where the lender absorbs all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can avoid paying PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen homeowners can get off the hook ahead of time. The law designates that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent.
Considering it can take countless years to arrive at the point where the principal is just 20% of the original loan amount, it's important to know how your home has increased in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends forecast plummeting home values, realize that real estate is local. Your neighborhood might not be heeding the national trends and/or your home might have secured equity before things simmered down.
The difficult thing for most home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to recognize the market dynamics of our area. At Allatoona Appraisal, we're experts at identifying value trends in Acworth, Cobb County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: