Let Mountain High Appraisals, LLC help you discover if you can cancel your PMI
When buying a house, a 20% down payment is usually the standard. The lender's liability is generally only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and typical value variations on the chance that a borrower doesn't pay.
Banks were accepting down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the home is lower than the loan balance.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's favorable for the lender because they acquire the money, and they get paid if the borrower doesn't pay, opposite from a piggyback loan where the lender takes in 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 a homeowner prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart homeowners can get off the hook a little earlier. The law guarantees that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
It can take countless years to get to the point where the principal is only 20% of the initial amount borrowed, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends predict declining 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 tough thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Mountain High Appraisals, LLC, we know when property values have risen or declined. We're masters at identifying value trends in Denver, Denver County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At that 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: