Peak Appraisals, Inc. can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is usually the standard. Because the liability for the lender is generally only the remainder between the home value and the sum due on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it became customary to see lenders only asking for down payments of 10, 5, 3 or often 0 percent. A lender is able to handle the added risk of the minimal down payment with Private Mortgage Insurance or PMI. This additional plan takes care of the lender if a borrower doesn't pay on the loan and the value of the property is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be costly to a borrower. Instead of a piggyback loan where the lender absorbs all the losses, PMI is beneficial for the lender because they secure the money, and they get the money if the borrower is unable to pay.
How can a home owner avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Keen homeowners can get off the hook beforehand. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
Because it can take a significant number of years to reach the point where the principal is only 80% of the initial amount borrowed, it's crucial to know how your Michigan home has grown in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not follow national trends and/or your home might have acquired equity before things declined. So even when nationwide trends signify declining home values, you should know most importantly that real estate is local.
A certified, Michigan licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At Peak Appraisals, Inc., we're masters at recognizing value trends in Bloomfield Hills, Oakland 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 do away with the PMI with little effort. 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: