Let Columbus Appraisal Company, LLC help you determine if you can cancel your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is usually only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and typical value changes in the event a borrower defaults.
Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is lower than the balance of the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible. It's advantageous for the lender because they obtain the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender consumes 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 buyer refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart home owners can get off the hook a little early. The law stipulates that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.
Considering it can take many years to arrive at the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends forecast decreasing home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Columbus Appraisal Company, LLC, we know when property values have risen or declined. We're experts at analyzing value trends in Columbus, Franklin County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that 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: