Let Colen & Associates help you decide if you can get rid of your PMI
It's typically inferred that a 20% down payment is the standard when buying a house. The lender's liability is generally only the remainder between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and regular value changes in the event a purchaser doesn't pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. This additional policy covers the lender in the event a borrower defaults on the loan and the value of the house is less than the loan balance.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible. Separate from a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they obtain the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook sooner than expected.
Because it can take countless years to get to the point where the principal is only 20% of the original loan amount, it's important to know how your home has increased in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Even when nationwide trends forecast declining home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have secured equity before things cooled off.
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. As appraisers, it's our job to understand the market dynamics of our area. At Colen & Associates, we know when property values have risen or declined. We're masters at pinpointing value trends in Baltimore, Baltimore County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually remove the PMI with little trouble. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: