Have equity in your home? Want a lower payment? An appraisal from A & B Tax Service can help you get rid of your PMI.
It's widely known that a 20% down payment is accepted when getting a mortgage. Since the liability for the lender is generally only the difference between the home value and the sum due on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuationson the chance that a purchaser defaults.
Banks were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is lower than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the losses, PMI is profitable for the lender because they secure the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners avoid paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook beforehand. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
Because it can take many years to reach the point where the principal is just 20% of the original amount borrowed, it's necessary to know how your home has increased in value. After all, every bit of appreciation you've acquired over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate falling home values, realize that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home could have secured equity before things settled down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It's an appraiser's job to recognize the market dynamics of their area. At A & B Tax Service, we know when property values have risen or declined. We're masters at recognizing value trends in Sturtevant, Racine County and surrounding areas. Faced with information from an appraiser, the mortgage company will generally cancel the PMI with little effort. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: