Have equity in your home? Want a lower payment? An appraisal from ERBES APPRAISALS, INC. can help you get rid of your PMI.When getting a mortgage, a 20% down payment is usually the standard. Because the risk for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuations in the event a borrower is unable to pay.
The market was working with down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional plan guards the lender in the event a borrower is unable to pay on the loan and the value 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 monthly payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Instead of a piggyback loan where the lender consumes all the costs, PMI is beneficial for the lender because they collect the money, and they get the money if the borrower doesn't pay.
How can a home buyer prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount on nearly all loans. Smart home owners can get off the hook sooner than expected. The law states that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
It can take many years to arrive at the point where the principal is just 80% of the original amount of the loan, so it's essential to know how your New York home has grown in value. After all, all of the appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not follow national trends and/or your home could have acquired equity before the economy cooled off. So even when nationwide trends predict decreasing home values, you should understand that real estate is local.
The difficult thing for many homeowners to determine is just when their home's equity rises above the 20% point. An accredited, New York licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At ERBES APPRAISALS, INC., we're masters at identifying value trends in Lockport, Niagara County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little effort. 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year