Let Bruce W. Reyle Commercial and Residential Real Estate Appraisers & Consultants help you figure out if you can get rid of your PMI
It's typically inferred that a 20% down payment is accepted when buying a house. The lender's risk is usually only the difference between the home value and the amount due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value variations on the chance that a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or often 0 percent. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the value of the home is lower than what is owed on the loan.
Since 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 pricey to a borrower. Opposite from a piggyback loan where the lender consumes all the losses, PMI is profitable for the lender because they collect 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 homeowners can avoid bearing the expense of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, keen homeowners can get off the hook sooner than expected.
Because 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 grown in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends signify plummeting home values, realize that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have secured equity before things settled down.
The hardest thing for many home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At Bruce W. Reyle Commercial and Residential Real Estate Appraisers & Consultants, we're masters at analyzing value trends in Fairfax, Fairfax City County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often drop the PMI with little anxiety. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: