Let Pacific Northwest Appraisal help you decide if you can cancel your PMI
A 20% down payment is usually accepted when purchasing a home. Because the risk for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and regular value variationson the chance that a purchaser doesn't pay.
The market was accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This added plan covers the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than the loan balance.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they get paid if the borrower is unable to pay, opposite from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can refrain from bearing the cost of PMI
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law guarantees that, upon 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 a little early.
Since it can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has grown in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends indicate declining home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home could have acquired equity before things calmed 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. As appraisers, it's our job to recognize the market dynamics of our area. At Pacific Northwest Appraisal, we know when property values have risen or declined. We're experts at analyzing value trends in Bothell, Snohomish County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: