Let TNT Appraisal MN help you decide if you can cancel your PMI
When getting a mortgage, a 20% down payment is usually the standard. Since the risk for the lender is oftentimes only the difference between the home value and the sum outstanding on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuationsin the event a purchaser doesn't pay.
Banks were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to endure the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the worth of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and generally isn't even tax deductible, PMI is pricey to a borrower. It's money-making for the lender because they acquire 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 a homeowner avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, savvy home owners can get off the hook a little earlier.
Considering it can take many years to get to the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has increased in value. After all, all of the appreciation you've acquired over the years counts towards dismissing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends hint at plummeting home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have gained equity before things settled down.
The hardest thing for most home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to recognize the market dynamics of our area. At TNT Appraisal MN, we're masters at recognizing 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 most often drop the PMI with little anxiety. At which 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: