Let CMRE Appraisals Inc. help you decide if you can get rid of your PMI
A 20% down payment is usually the standard when purchasing a home. The lender's risk is generally only the remainder between the home value and the amount due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value changes in the event a purchaser is unable to pay.
Banks were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the value of the house is less than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible. Unlike a piggyback loan where the lender consumes all the costs, PMI is profitable for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer refrain from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, smart homeowners can get off the hook sooner than expected.
It can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, so it's important to know how your home has grown 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 fallen below the 80% mark? Even when nationwide trends forecast plummeting home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have acquired equity before things settled down.
The difficult thing for almost all 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 know the market dynamics of our area. At CMRE Appraisals Inc., we're experts at analyzing value trends in Portland, Cumberland 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 usually remove the PMI with little effort. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: