Gilpatric Consulting can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is usually the standard. Since the risk for the lender is oftentimes only the remainder between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value variationson the chance that a borrower is unable to pay.
The market was working with down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional policy covers the lender in case a borrower is unable to pay on the loan and the value of the home is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. Unlike a piggyback loan where the lender takes in all the deficits, PMI is favorable for the lender because they acquire the money, and they receive payment 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 can a buyer refrain from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart home owners can get off the hook beforehand. The law guarantees that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
Because it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home might have gained equity before things settled down, so even when nationwide trends hint at plummeting home values, you should understand that real estate is local.
The toughest thing for many homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Gilpatric Consulting, we're masters at identifying value trends in Arvada, Jefferson County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often drop the PMI with little effort. At which 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: