Let Higdon & Associates help you discover if you can eliminate your PMI
A 20% down payment is usually accepted when getting a mortgage. Considering the risk for the lender is often only the difference between the home value and the sum remaining on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and typical value changeson the chance that a borrower defaults.
During the recent mortgage upturn of the last decade, it became widespread to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower defaults on the loan and the market price of the home is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender takes in 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 buyers keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen home owners can get off the hook a little early. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take countless years to get to the point where the principal is just 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 gained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be adopting the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
The toughest thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Higdon & Associates, we know when property values have risen or declined. We're experts at recognizing value trends in Antioch, Contra Costa County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: