Let Crowe Appraisals help you figure out if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. Since the risk for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changeson the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in case a borrower is unable to pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's favorable for the lender because they collect the money, and they receive payment if the borrower doesn't pay, unlike a piggyback loan where the lender consumes 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?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise home owners can get off the hook ahead of time.
Because it can take many 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 accomplished over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends forecast declining home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things simmered down.
The toughest thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Crowe Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Oklahoma City, Oklahoma County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little effort. At that 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: