Have equity in your home? Want a lower payment? An appraisal from All City Appraisal can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is usually the standard. The lender's risk is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and regular value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage boom of the last decade, it became widespread to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the value of the house is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender consumes all the costs, PMI is favorable for the lender because they obtain the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can avoid bearing the cost of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law guarantees that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, wise home owners can get off the hook a little earlier.
Since it can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends predict decreasing home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have gained equity before things simmered down.
The hardest thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At All City Appraisal, we know when property values have risen or declined. We're experts at identifying value trends in Woodland Hills, Los Angeles County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: