Have equity in your home? Want a lower payment? An appraisal from Crescent Appraisal Group, Inc. can help you get rid of your PMI.
It's typically known that a 20% down payment is accepted when purchasing a home. The lender's risk is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changes on the chance that a borrower is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the low down payment with Private Mortgage Insurance or PMI. This added plan guards the lender in the event a borrower defaults on the loan and the value of the house is lower than the loan balance.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. It's profitable for the lender because they collect the money, and they get paid if the borrower is unable to pay, separate 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 home owners can avoid paying PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute home owners can get off the hook ahead of time. The law stipulates that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over the years counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
The difficult thing for almost all homeowners to understand 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 Crescent Appraisal Group, Inc., we're experts at identifying value trends in Metairie, Jefferson County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: