Let Floyd Appraisal Works help you determine if you can cancel your PMI
A 20% down payment is typically accepted when buying a house. The lender's liability is oftentimes only the remainder between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations on the chance that a borrower is unable to pay.
Banks were accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to endure the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's advantageous for the lender because they obtain the money, and they get paid if the borrower is unable to pay, opposite from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid bearing the cost of PMI
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law states that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, savvy home owners can get off the hook ahead of time.
It can take countless years to reach the point where the principal is only 20% of the initial loan amount, so it's crucial to know how your home has appreciated in value. After all, any appreciation you've gained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends forecast falling home values, you should understand that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At Floyd Appraisal Works, we know when property values have risen or declined. We're masters at determining value trends in Hohenwald, Lewis County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: