Let Molinaro Associates help you figure out if you can cancel your PMIWhen buying a house, a 20% down payment is usually the standard. Considering the liability for the lender is usually only the difference between the home value and the sum remaining on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations in the event a borrower doesn't pay.
Lenders were working with down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower is unable to pay on the loan and the value of the home is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and on many occasions isn't even tax deductible, PMI can be costly to a borrower. It's profitable for the lender because they secure the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender takes in all the costs.
How can a homebuyer refrain from paying PMI?The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law promises that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, wise home owners can get off the hook a little early.
It can take many years to arrive at the point where the principal is only 80% of the original amount borrowed, so it's important to know how your New Jersey home has increased in value. After all, all of the appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not conform to national trends and/or your home could have gained equity before the economy simmered down. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
The toughest thing for many people to figure out is whether their home equity has exceeded the 20% point. An accredited, New Jersey licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At Molinaro Associates, we know when property values have risen or declined. We're masters at recognizing value trends in Toms River, Ocean County, and surrounding areas. Faced with data 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: