Let The Appraisal Source help you learn if you can eliminate your PMIWhen getting a mortgage, a 20% down payment is typically the standard. Since the liability for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower doesn't pay.Lenders were working with down payments discounted 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 solution is Private Mortgage Insurance or PMI. This added plan covers the lender in the event a borrower defaults on the loan and the value of the house is less than what is owed on the loan. Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they secure the money, and they get paid if the borrower doesn't pay.
How can a home buyer avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen homeowners can get off the hook ahead of time. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.Since it can take many years to reach the point where the principal is only 80% of the original loan amount, it's crucial to know how your New Jersey home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home might have secured equity before things cooled off. So even when nationwide trends signify declining home values, you should realize that real estate is local. The hardest thing for most homeowners to determine is just when their home's equity goes over the 20% point. An accredited, New Jersey licensed real estate appraiser can surely help. It is an appraiser's job to know the market dynamics of their area. At The Appraisal Source, we're experts at pinpointing value trends in Millburn, Essex County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
|
||||||||||||||||||
