Canceling your PMI - Private Mortgage Insurance can save you money.
Scott Appraisal Co. can help
If your down payment is less than 20%, PMI will likely be required by your lender. PMI is essentially insurance that your lender require that YOU pay for. This charge will typically continue unless you ask that it be removed and are able to demonstrate that you have at least 20% equity in your home. This can occur as you pay off your loan, or if property values increase. An appraisal can help you substantiate this.
When buying a house, a 20% down payment is often the standard. The lender's only risk is usually just the difference between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and typical value changes on the chance that a borrower doesn't pay.
Lenders were working with down payments dropping to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to endure the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the market price of the house is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. Different from a piggyback loan where the lender consumes all the costs, PMI is money-making for the lender because they secure the money, and they get paid if the borrower doesn't pay.
How homebuyers can keep from bearing the expense of PMIWith the passage of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on most loans. The law states that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, keen homeowners can get off the hook sooner than expected.
Because it can take several years to arrive at the point where the principal is just 80% of the initial amount of the loan, it's important to know how your Oklahoma home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not conform to national trends and/or your home might have gained equity before the economy simmered down. So even when nationwide trends hint at declining home values, you should understand that real estate is local.
The hardest thing for almost all people to determine is just when their home's equity goes over the 20% point. A certified, Oklahoma licensed real estate appraiser can certainly help. It's an appraiser's job to keep up with the market dynamics of their area. At Scott Appraisal Co., we know when property values have risen or declined. We're experts at analyzing value trends in Bartlesville, Washington County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little trouble. At that 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: