Let Price Appraisals & Realty, LLC help you figure out if you can eliminate your PMI
A 20% down payment is typically the standard when getting a mortgage. Because the risk for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and regular value variationsin the event a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the worth of the home is less than the loan balance.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible. 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 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 can a home owner avoid bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law states that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, wise homeowners can get off the hook a little earlier.
Since it can take many years to get to the point where the principal is only 20% of the initial amount borrowed, it's essential to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home could have gained equity before things calmed down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The difficult 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 certainly 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. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: