Have equity in your home? Want a lower payment? An appraisal from Central Arizona Appraisers can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it was common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan takes care of the lender in case a borrower defaults on the loan and the market price of the house is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. Unlike a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they obtain the money, and they get the money 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 homebuyers can avoid bearing the expense of PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Savvy homeowners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take many years to get to the point where the principal is just 20% of the initial loan amount, it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things simmered down, so even when nationwide trends signify falling home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At Central Arizona Appraisers, we know when property values have risen or declined. We're masters at recognizing value trends in Phoenix, Maricopa County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: