Let TNT Appraisal MN help you discover if you can get rid of your PMI
It's generally understood that a 20% down payment is common when getting a mortgage. Considering the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and regular value fluctuationsin the event a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the value of the home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender takes in all the losses, PMI is money-making for the lender because they secure 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 can home owners refrain from bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise homeowners can get off the hook beforehand. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take countless years to get to the point where the principal is just 20% of the initial loan amount, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've obtained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have secured 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 tough thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At TNT Appraisal MN, we're experts at recognizing value trends in Red Wing, Goodhue County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: