Let Central Arizona Appraisers help you decide if you can cancel your PMI
It's typically inferred that a 20% down payment is the standard when buying a house. The lender's liability is generally only the remainder between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and natural value changes in the event a borrower doesn't pay.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the property is lower than what the borrower still owes on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the damages, PMI is money-making for the lender because they obtain the money, and they receive payment 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 can a homebuyer prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Wise home owners can get off the hook sooner than expected. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Because it can take countless years to reach the point where the principal is only 20% of the original amount of the loan, it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be following the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends signify declining home values, you should understand that real estate is local.
The toughest thing for most home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It's an appraiser's job to understand the market dynamics of their area. At Central Arizona Appraisers, we know when property values have risen or declined. We're experts at pinpointing value trends in Phoenix, Maricopa County and surrounding areas. When faced with information from an appraiser, the mortgage company will often eliminate the PMI with little anxiety. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: