Have equity in your home? Want a lower payment? An appraisal from Metro Mountain Appraisers Inc. can help you get rid of your PMI.When getting a mortgage, a 20% down payment is usually the standard. Since the liability for the lender is oftentimes only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage upturn of the last decade, it was common to see lenders reducing down payments to 10, 5, 3 or even 0 percent. A lender is able to manage the additional risk of the low down payment with Private Mortgage Insurance or PMI. This supplemental plan protects the lender in the event a borrower is unable to pay on the loan and the value of the house is lower than the loan balance.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and on many occasions isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the costs, PMI is favorable for the lender because they secure the money, and they get paid if the borrower defaults.
How home owners can prevent bearing the expense of PMIThe Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart homeowners can get off the hook ahead of time. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
It can take a significant number of years to reach the point where the principal is only 80% of the original amount borrowed, so it's essential to know how your Colorado home has appreciated in value. After all, any appreciation you've gained over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends forecast falling home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have acquired equity before things cooled off.
The toughest thing for almost all homeowners to determine is whether their home equity has exceeded the 20% point. An accredited, Colorado licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Metro Mountain Appraisers Inc., we're experts at analyzing value trends in Denver, Denver County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often cancel the PMI with little trouble. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: