Have equity in your home? Want a lower payment? An appraisal from Cotter Valuation Group can help you get rid of your PMI.It's generally known that a 20% down payment is the standard when getting a mortgage. The lender's liability is usually only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value changes in the event a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders making deals with down payments of 10, 5 or often 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower defaults on the loan and the value of the property is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. It's profitable for the lender because they collect the money, and they receive payment if the borrower is unable to pay, as opposed to a piggyback loan where the lender consumes all the damages.
How home owners can keep from paying PMIWith the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on most loans. The law states that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, acute home owners can get off the hook sooner than expected.
Considering it can take several years to get to the point where the principal is only 80% of the initial amount of the loan, it's essential to know how your Arizona home has grown in value. After all, all of the appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends forecast falling home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home might have acquired equity before things declined.
The hardest thing for almost all people to figure out is just when their home's equity rises above the 20% point. An accredited, Arizona licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Cotter Valuation Group, we know when property values have risen or declined. We're experts at recognizing value trends in Mesa, Maricopa County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At that 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: