Let Thomas W. Steinhart help you determine if you can cancel your PMI
A 20% down payment is typically accepted when buying a house. Since the liability for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value variationsin the event a purchaser is unable to pay.
The market was accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in case 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 rolled into the mortgage monthly payment and frequently isn't even tax deductible, PMI is costly to a borrower. Opposite from a piggyback loan where the lender takes in all the costs, PMI is lucrative 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 home owners avoid bearing the expense of 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 initial loan amount. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, smart home owners can get off the hook a little early.
Since it can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, it's essential to know how your home has appreciated in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home could have acquired equity before things cooled off, 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 rises above the 20% point, as it's a difficult thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Thomas W. Steinhart, we know when property values have risen or declined. We're experts at determining value trends in Westfield, Hamilton County and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually drop the PMI with little anxiety. 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: