Let Las Palmas Appraisals help you decide if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically the standard. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and typical value variations in the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This added plan covers the lender if a borrower is unable to pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
Because 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 expensive to a borrower. It's profitable for the lender because they collect the money, and they receive payment if the borrower defaults, opposite from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, savvy home owners can get off the hook a little early.
It can take countless years to get to the point where the principal is only 20% of the initial amount borrowed, so it's essential to know how your home has increased in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends indicate falling home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things cooled off.
The toughest 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 definitely help. It's an appraiser's job to understand the market dynamics of their area. At Las Palmas Appraisals, we know when property values have risen or declined. We're masters at analyzing value trends in Palm Springs, Riverside County and surrounding areas. When faced with information from an appraiser, the mortgage company will often remove the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: