Let McCart Appraisal help you decide if you can cancel your PMIIt's widely understood that a 20% down payment is common when getting a mortgage. Considering the risk for the lender is often 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 regular value fluctuations in the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders reducing down payments to 10, 5, 3 or often 0 percent. How does a lender manage the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan protects the lender in case a borrower defaults on the loan and the market price of the home is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender consumes all the deficits, PMI is money-making for the lender because they collect the money, and they are covered if the borrower is unable to pay.
How can a homeowner refrain from bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. Wise home owners can get off the hook a little early. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
Considering it can take a significant number of years to arrive at the point where the principal is just 80% of the initial amount of the loan, it's essential to know how your California home has appreciated in value. After all, all of the appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict falling home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home might have secured equity before things declined.
A certified, California licensed real estate appraiser can help homeowners figure out if their equity has made it to the 20% point, as it's a hard thing to know. It's an appraiser's job to know the market dynamics of their area. At McCart Appraisal, we're masters at analyzing value trends in San Diego, San Diego County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
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