Let TNT Appraisal MN help you figure out if you can cancel your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value changes in the event a borrower is unable to pay.
Banks were accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of 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.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they obtain the money, and they receive payment if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can keep from bearing the cost of PMI
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart homeowners can get off the hook a little early. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take countless years to get to the point where the principal is just 20% of the initial amount of the loan, so it's essential to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards removing 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 signify plunging home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have gained equity before things simmered down.
The difficult thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At TNT Appraisal MN, we know when property values have risen or declined. We're experts at recognizing value trends in Red Wing, Goodhue County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little anxiety. 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: