It's generally understood that a 20% down payment is accepted when buying a house. Because the risk for the lender is often only the remainder between the home value and the sum due on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value variations on the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders reducing down payments to 10, 5, 3 or often 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan takes care of the lender if a borrower doesn't pay on the loan and the market price of the property is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and on many occasions isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender consumes all the deficits, PMI is money-making for the lender because they secure the money, and they get paid if the borrower is unable to pay.
Has your home value appreciated since you first purchased? Call Hendrickson Appraisals today at 480-507-7545. You may be able to cancel your Private Mortgage Insurance premium.
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, savvy home owners can get off the hook sooner than expected.
Considering it can take a significant number of years to reach the point where the principal is just 80% of the original amount borrowed, it's essential to know how your Arizona home has appreciated in value. After all, all of the appreciation you've accomplished over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood may not conform to national trends and/or your home might have acquired equity before things simmered down. So even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
A certified, Arizona licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. It's an appraiser's job to understand the market dynamics of their area. At Hendrickson Appraisals, we know when property values have risen or declined. We're masters at determining value trends in Mesa, Maricopa County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Is PMI something increasing your monthly mortgage payment? Call Hendrickson Appraisals today at 480-507-7545 or send us an e-mail. A new appraisal could save you thousands.