Let Higdon & Associates help you discover if you can get rid of your PMI
It's generally known that a 20% down payment is the standard when purchasing a home. The lender's risk is often only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and typical value changes in the event a purchaser is unable to pay.
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 low down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in case a borrower defaults on the loan and the market price of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they secure the money, and they get the money if the borrower is unable to pay, different from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can keep from bearing the expense of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise homeowners can get off the hook a little earlier. The law designates that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Considering it can take many years to get to the point where the principal is only 20% of the initial amount of the loan, it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've gained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends indicate declining home values, realize that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have secured equity before things cooled off.
An accredited, 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. It's an appraiser's job to know the market dynamics of their area. At Higdon & Associates, we know when property values have risen or declined. We're masters at determining value trends in Antioch, Contra Costa County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: