Let Dennis B. Thomas help you figure out if you can get rid of your PMI
A 20% down payment is typically accepted when buying a house. The lender's liability is usually only the remainder between the home value and the sum remaining on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and natural value changes on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. This additional policy protects the lender in case a borrower doesn't pay on the loan and the market price of the house is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender consumes all the damages, PMI is profitable for the lender because they acquire the money, and they get paid 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 keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, savvy home owners can get off the hook sooner than expected.
Because it can take countless years to arrive at the point where the principal is only 20% of the initial amount borrowed, it's essential to know how your home has appreciated in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home might have acquired equity before things settled down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
The toughest thing for many home owners to understand is just when their home's equity goes over the 20% point. A certified real estate appraiser can certainly help. It's an appraiser's job to recognize the market dynamics of their area. We know when property values have risen or declined. We're masters at pinpointing value trends in Jacksonville, Duval County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: