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 typically understood that a 20% down payment is the standard when buying a house. The lender's liability is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and typical value variations in the event a borrower defaults.
During the recent mortgage boom of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the additional risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the value of the home is lower 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 often isn't even tax deductible. Unlike a piggyback loan where the lender consumes all the deficits, PMI is beneficial for the lender because they acquire the money, and they get the money 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 prevent paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, savvy homeowners can get off the hook ahead of time.
Because it can take countless years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home could have gained equity before things calmed down, so even when nationwide trends predict falling home values, you should realize that real estate is local.
The hardest thing for most homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At TNT Appraisal MN, we're experts at determining value trends in Red Wing, Goodhue County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: