Let McMahon, Baldwin and Associates, Inc help you discover if you can get rid of your PMI
When buying a house, a 20% down payment is typically the standard. The lender's risk is generally only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and natural value changes on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the market price of the home is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they obtain the money, and they get paid if the borrower doesn't pay, contradictory to a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can prevent paying PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy home owners can get off the hook beforehand. The law pledges that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.
Considering it can take many years to get to the point where the principal is just 20% of the original loan amount, it's essential to know how your home has grown in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends hint at falling home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things settled down.
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 difficult thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At McMahon, Baldwin and Associates, Inc, we know when property values have risen or declined. We're experts at recognizing value trends in Lombard, Dupage County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally do away with the PMI with little effort. At which 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: