Have equity in your home? Want a lower payment? An appraisal from TNT Appraisal MN can help you get rid of your PMI.
It's widely understood that a 20% down payment is common when getting a mortgage. The lender's liability is usually only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value changes on the chance that a purchaser doesn't pay.
Lenders were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the value of the house is less than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible. It's advantageous for the lender because they collect the money, and they get the money if the borrower is unable to pay, opposite from a piggyback loan where the lender consumes 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 a homeowner prevent bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Keen home owners can get off the hook a little earlier. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends signify plummeting home values, you should understand that real estate is local.
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 tough thing to know. It's an appraiser's job to know the market dynamics of their area. At TNT Appraisal MN, we're masters at pinpointing value trends in Red Wing, Goodhue County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually cancel the PMI with little effort. 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: