Let DANIEL I KANDEL help you learn if you can cancel your PMI
It's generally inferred that a 20% down payment is common when getting a mortgage. The lender's risk is usually only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and regular value fluctuations on the chance that a borrower defaults.
Lenders were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender handle the additional risk of the small down payment? The answer is 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 lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's money-making for the lender because they collect the money, and they get paid if the borrower doesn't pay, different from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from paying PMI
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Keen homeowners can get off the hook ahead of time. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be reflecting the national trends and/or your home could have gained equity before things calmed down, so even when nationwide trends forecast falling home values, you should realize that real estate is local.
The difficult thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At DANIEL I KANDEL, we know when property values have risen or declined. We're masters at pinpointing value trends in Weston/Ft. Lauderdale, Broward County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: