Let Phoenix Valuations, LLC help you figure out if you can eliminate your PMI
It's generally known that a 20% down payment is accepted when purchasing a home. The lender's liability is generally only the remainder between the home value and the sum remaining on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower is unable to pay.
Banks were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the deficits, PMI is lucrative for the lender because they obtain the money, and they get the money if the borrower doesn't pay.
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
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook a little earlier.
Since it can take countless years to reach the point where the principal is just 20% of the original amount of the loan, it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends signify plunging home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Phoenix Valuations, LLC, we're masters at determining value trends in Scottsdale, Maricopa 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 cancel the PMI with little trouble. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: