Let South Shore Realty Advisors, Inc help you decide if you can cancel your PMI
A 20% down payment is typically the standard when buying a house. Considering the risk for the lender is often only the difference between the home value and the amount due on the loan, the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value changeson the chance that a purchaser doesn't pay.
Banks were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional policy takes care of the lender if a borrower doesn't pay on the loan and the value of the property is lower than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. It's advantageous for the lender because they secure the money, and they receive payment if the borrower doesn't pay, contradictory to a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from paying PMI
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Acute homeowners can get off the hook ahead of time. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
Since 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 important to know how your home has grown in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have secured equity before things settled down, so even when nationwide trends predict falling home values, you should understand that real estate is local.
The difficult thing for almost all 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 is an appraiser's job to recognize the market dynamics of their area. At South Shore Realty Advisors, Inc, we're masters at analyzing value trends in Marshfield, Plymouth County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often remove the PMI with little anxiety. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: