Let Northern Arizona Appraisal, Inc. help you determine if you can get rid of your PMI
When getting a mortgage, a 20% down payment is usually the standard. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value changes on the chance that a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional policy protects the lender in case a borrower doesn't pay on the loan and the market price of the house is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they secure the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers keep from bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Wise home owners can get off the hook ahead of time. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.
Because it can take countless years to arrive at the point where the principal is just 20% of the original loan amount, it's important to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things calmed down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Northern Arizona Appraisal, Inc., we're masters at identifying value trends in Phoenix, Maricopa 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 usually cancel the PMI with little trouble. 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: