Let Premier Appraisal of SoCal help you discover if you can cancel your PMI
It's largely known that a 20% down payment is common when purchasing a home. Because the risk for the lender is usually only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuationsin the event a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to handle the added risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan covers the lender in case a borrower defaults on the loan and the value of the house is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they acquire 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 homeowners prevent paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law guarantees that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, savvy home owners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, so it's essential to know how your home has grown in value. After all, any appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things calmed down, so even when nationwide trends signify plummeting home values, you should understand that real estate is local.
An accredited, 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 understand the market dynamics of our area. At Premier Appraisal of SoCal, we're masters at recognizing value trends in Mission Viejo, Orange County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally remove 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: