Let H.M. Hoffman & Company help you figure out if you can cancel your PMI
A 20% down payment is usually the standard when getting a mortgage. Considering the risk for the lender is often only the remainder between the home value and the amount remaining on the loan, the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and regular value variationsin the event a borrower doesn't pay.
The market was accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the worth of the property is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender takes in all the costs, PMI is beneficial for the lender because they acquire 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 buyers can keep from paying PMI
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise homeowners can get off the hook a little early. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's important to know how your home has grown in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends forecast declining home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have acquired equity before things settled down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At H.M. Hoffman & Company, we're experts at analyzing value trends in Narberth, Montgomery County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often do away with the PMI with little trouble. At which 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: