Have equity in your home? Want a lower payment?
When buying a house, a 20% down payment is typically the standard. Considering the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser doesn't pay. The market was taking 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 handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the home is less than the loan balance. PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. Different from a piggyback loan where the lender consumes all the damages, PMI is profitable for the lender because they collect the money, and they get the money if the borrower doesn't pay.  You may be able to save money by removing your PMI.With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Acute homeowners can get off the hook ahead of time. The law designates that, at the request of the home owner, 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 20% of the initial amount borrowed, so it's essential to know how your home has grown in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home might have acquired equity before things cooled off, so even when nationwide trends hint at declining 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 goes over the 20% point. As a Certified Residential Real Estate Appraiser I can certainly help. As appraisers, it's our job to know the market dynamics of our area. We're masters at identifying value trends in South Florida, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At that 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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