Northern Arizona Appraisal, Inc. can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is typically the standard. The lender's liability is generally only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and regular value changes on the chance that a purchaser defaults.
The market was accepting down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. As opposed to a piggyback loan where the lender consumes all the damages, PMI is favorable for the lender because they secure the money, and they get the money if the borrower is unable to pay.
How homebuyers can refrain from paying PMIThe Homeowners Protection Act of 1998 forces the lenders on the majority of loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Savvy homeowners can get off the hook a little early. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take a significant number of years to get to the point where the principal is only 80% of the initial amount borrowed, so it's necessary to know how your Arizona home has increased in value. After all, all of the appreciation you've acquired over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict decreasing home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things declined.
The difficult thing for almost all consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Arizona licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Northern Arizona Appraisal, Inc., we're experts at analyzing value trends in Phoenix, Maricopa County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: