profile picture

Let Price Appraisals & Realty, LLC help you figure out if you can get rid of your PMI

It's largely understood that a 20% down payment is the standard when buying a house. Since the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuationsin the event a purchaser doesn't pay.

The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This added policy takes care of the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than the balance of the loan.

PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's advantageous for the lender because they collect the money, and they get paid if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the damages.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can home buyers keep from bearing the expense of PMI?

The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, wise homeowners can get off the hook a little earlier.

It can take many years to reach the point where the principal is just 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've obtained over time counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends signify declining home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things settled down.

The difficult thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Price Appraisals & Realty, LLC, we know when property values have risen or declined. We're experts at determining value trends in Lakeway, Travis County and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally eliminate the PMI with little effort. At which time, the home owner can enjoy the savings from that point on.

Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year