Let Clarity Valuation, Inc. help you decide if you can eliminate your PMI
A 20% down payment is usually accepted when buying a house. The lender's risk is often only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and typical value variations on the chance that a purchaser defaults.
The market was working with down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the worth of the home is less than what the borrower still owes on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. It's profitable for the lender because they collect the money, and they get paid if the borrower defaults, different from a piggyback loan where the lender absorbs 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 refrain from paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law guarantees that, at the 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 ahead of time.
It can take countless years to arrive at the point where the principal is only 20% of the original loan amount, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be reflecting the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends indicate plummeting 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 difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Clarity Valuation, Inc., we're experts at identifying value trends in Glen Ellyn, Dupage County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often do away with the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: