profile picture

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

It's typically known that a 20% down payment is the standard when purchasing a home. Since the risk for the lender is usually only the difference between the home value and the sum outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and typical value fluctuationson the chance that a borrower defaults.

During the recent mortgage upturn of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they collect the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender consumes all the deficits.

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

How can a home owner refrain from 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 equals 78 percent of the beginning loan amount. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook a little early.

Since it can take countless years to arrive at the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has grown in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be minding the national trends and/or your home might have secured equity before things simmered down, so even when nationwide trends hint at plunging home values, you should understand that real estate is local.

The toughest thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Price Appraisals & Realty, LLC, we're experts at pinpointing value trends in Lakeway, Travis County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At that 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