Have equity in your home? Want a lower payment? An appraisal from O'Brien Appraisal Group can help you get rid of your PMI.
When buying a house, a 20% down payment is typically the standard. Since the liability for the lender is often only the remainder between the home value and the amount due on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value changesin the event a borrower is unable to pay.
During the recent mortgage upturn of the last decade, it was customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan guards the lender if a borrower is unable to pay on the loan and the market price of the property is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they secure the money, and they receive payment if the borrower defaults, different from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner prevent paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, wise homeowners can get off the hook a little early.
Since it can take many years to reach the point where the principal is just 20% of the original amount of the loan, it's important to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict decreasing home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have gained equity before things settled down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At O'Brien Appraisal Group, we know when property values have risen or declined. We're masters at recognizing value trends in Clarksville, Mecklenburg County and surrounding areas. Faced with data from an appraiser, the mortgage company will often drop the PMI with little effort. 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: