Let DAS Appraisals help you figure out if you can cancel your PMI
A 20% down payment is usually accepted when getting a mortgage. The lender's risk is generally only the difference between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and typical value changes in the event a purchaser doesn't pay.
Banks were accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the value of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they obtain the money, and they get the money if the borrower defaults, opposite from a piggyback loan where the lender takes in 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 buyers 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 terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, keen home owners can get off the hook ahead of time.
Since it can take many years to get to the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has appreciated in value. After all, any appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends indicate decreasing home values, you should realize 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 difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At DAS Appraisals, we know when property values have risen or declined. We're masters at analyzing value trends in Hackensack, Rockland County and surrounding areas. Faced with information from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: