Let Shamrock Appraisals, Inc. help you determine if you can cancel your PMI
When getting a mortgage, a 20% down payment is usually the standard. Considering the risk for the lender is usually only the difference between the home value and the amount remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value changeson the chance that a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower defaults on the loan and the value of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender takes in all the damages, PMI is profitable for the lender because they collect 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 can a homebuyer refrain from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, acute homeowners can get off the hook ahead of time.
It can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, so it's essential to know how your home has grown in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends signify decreasing 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. As appraisers, it's our job to recognize the market dynamics of our area. At Shamrock Appraisals, Inc., we're masters at determining value trends in Tuscaloosa, Tuscaloosa County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: