Let Shamrock Appraisals, Inc. help you determine if you can get rid of your PMI
When purchasing a home, a 20% down payment is usually the standard. Considering the liability for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuationsin the event a borrower doesn't pay.
Banks were taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy protects the lender if a borrower doesn't pay on the loan and the worth of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. Contradictory to a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they collect the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, keen home owners can get off the hook a little early.
It can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, so it's essential to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards abolishing PMI. So why 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 might have secured equity before things simmered down, so even when nationwide trends hint at declining home values, you should understand that real estate is local.
The hardest thing for almost all homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Shamrock Appraisals, Inc., we know when property values have risen or declined. We're masters at recognizing value trends in Tuscaloosa, Tuscaloosa County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally drop the PMI with little trouble. At which 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: