Let Phoenix Valuations, LLC help you learn if you can get rid of your PMI
When purchasing a home, a 20% down payment is usually the standard. Because the risk for the lender is often only the remainder between the home value and the amount due on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuationsin the event a borrower is unable to pay.
The market was working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy covers the lender in the event a borrower doesn't pay on the loan and the worth of the house is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they obtain the money, and they get paid if the borrower defaults, contradictory to 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 a homeowner avoid bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law designates that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook sooner than expected.
Since it can take many years to get to the point where the principal is only 20% of the original amount borrowed, it's necessary to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends forecast plunging home values, you should realize that real estate is local.
The difficult thing for many homeowners to know is just when their home's equity goes over 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 Phoenix Valuations, LLC, we're masters at identifying 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 most often remove the PMI with little effort. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: