Area Appraisal Services, Inc. can help you remove your Private Mortgage Insurance
It's typically inferred that a 20% down payment is common when getting a mortgage. The lender's risk is oftentimes only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value fluctuations in the event a borrower defaults.
The market was working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the house is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, unlike a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer avoid paying PMI?
With the implementation 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 original loan amount. The law states that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, keen home owners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things calmed down, so even when nationwide trends indicate plunging home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Area Appraisal Services, Inc., we know when property values have risen or declined. We're masters at determining value trends in Bethesda, Montgomery County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little trouble. 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:
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