James Earp Appraisal Service can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when getting a mortgage. The lender's risk is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value changes on the chance that a borrower is unable to pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. It's profitable for the lender because they collect the money, and they get paid if the borrower defaults, opposite 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 can home owners prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, wise home owners can get off the hook a little early.
It can take countless years to get to the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has increased in value. After all, every bit of appreciation you've gained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends predict falling home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have secured equity before things cooled off.
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. It is an appraiser's job to understand the market dynamics of their area. At James Earp Appraisal Service, we know when property values have risen or declined. We're masters at pinpointing value trends in Raleigh, Wake County and surrounding areas. When faced with data from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: