Have equity in your home? Want a lower payment? An appraisal from NorthStar Realty Services can help you get rid of your PMI.
A 20% down payment is typically accepted when buying a house. The lender's risk is oftentimes only the remainder between the home value and the sum due on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value changes in the event a purchaser defaults.
The market was working with 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 handle the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the value of the home is less 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 many times isn't even tax deductible. It's money-making for the lender because they secure the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs 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 homeowners prevent bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cancel 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 released when the principal amount reaches only 80 percent. So, smart home owners can get off the hook sooner than expected.
It can take many years to reach the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be reflecting the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The difficult thing for most homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At NorthStar Realty Services, we're experts at recognizing value trends in Rochester, Olmsted 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 most often drop the PMI with little effort. 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: