Let Rocky Mountain Valuation Services help you decide if you can cancel your PMIWhen purchasing a home, a 20% down payment is usually the standard. The lender's risk is often only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value changes in the event a purchaser doesn't pay.During the recent mortgage upturn of the last decade, it became common to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the value of the house is less than what the borrower still owes on the loan. PMI is pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. It's money-making for the lender because they secure the money, and they receive payment if the borrower defaults, separate from a piggyback loan where the lender absorbs all the costs.
How can buyers prevent bearing the expense of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. Smart home owners can get off the hook a little early. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.It can take several years to get to the point where the principal is just 80% of the initial amount of the loan, so it's important to know how your Colorado home has grown in value. After all, every bit of appreciation you've obtained over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not conform to national trends and/or your home could have secured equity before things simmered down. So even when nationwide trends predict decreasing home values, you should realize that real estate is local. An accredited, Colorado 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 understand the market dynamics of their area. At Rocky Mountain Valuation Services, we're experts at identifying value trends in Edwards, Eagle County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often remove the PMI with little trouble. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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