Let's Get Rid of Your PMI
Before we can drop that daunting PMI, we must first understand what it is. PMI stands for Private Mortgage Insurance. It's largely known that a 20 percent down payment is accepted when purchasing a home. The lender's risk is usually only the difference between the home value and the balance due on the loan. The down payment supplies a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuations in the event where a purchaser defaults.
The market was working with down payments as low as 10, 5, and even 0 percent in the peak of last decade's mortgage boom. A lender is able to supplement the added risk of the reduced down payment with Private Mortgage Insurance. PMI guards the lender if a borrower is unable to pay on the loan, and the market price of the property is less than what the borrower still owes on the loan.
Because the extra $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment (and many times isn't even tax deductible), PMI is pricey to a borrower. It's profitable for the lender because they acquire the money, and they get the money if the borrower doesn't pay.
How Can a Homeowner Avoid Paying PMI?
The 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. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. Wise home owners can get off the hook sooner than expected.
It can take a significant number of years to get that principle down to 80 percent of the initial amount of the loan, so it's important to know how your Arizona home has grown in value.
Even when your loan has dropped below the 80 percent mark, It's important to remember that real estate is always local. Your neighborhood might not conform to national trends and/or your home could have acquired equity before the economy declined. Even when nationwide trends forecast falling home values, that might not always apply to where you live.
A licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20 percent point. It's an appraiser's job to know the market dynamics of their area. We are masters at pinpointing value trends in Gilbert, Maricopa County, and the surrounding areas. We know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually remove the PMI with no trouble. From that point on, say hello to the savings.