Let Kurb Service Appraisals help you figure out if you can cancel your PMI
A 20% down payment is usually the standard when purchasing a home. Considering the liability for the lender is often 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, reselling the home, and typical value fluctuationsin the event a purchaser defaults.
The market was working with 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 takes care of the lender in case a borrower doesn't pay on the loan and the value of the home is lower than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. It's lucrative for the lender because they secure the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Keen homeowners can get off the hook ahead of time. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take many years to arrive at the point where the principal is just 20% of the initial amount borrowed, it's essential to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be reflecting the national trends and/or your home might have gained equity before things simmered down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The toughest thing for many home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Kurb Service Appraisals, we know when property values have risen or declined. We're experts at determining value trends in Naperville, Dupage County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally remove the PMI with little trouble. 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: