Let Phoenix Valuations, LLC help you learn if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. 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 regular value fluctuations in the event a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it was common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower defaults on the loan and the market price of the house is lower than what is owed on the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. It's profitable for the lender because they acquire the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs 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 home owner prevent paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart homeowners can get off the hook a little earlier. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Considering it can take many years to reach the point where the principal is just 20% of the initial amount of the loan, it's important to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends signify plunging home values, you should understand that real estate is local.
The toughest thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to know 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 usually remove the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: