Did you know that on a $350k home mortgage the average PMI payment is around $400/month?
And whats worse, this is wasted money you will never see again because it doesn’t reduce the mortgage balance and in most cases it’s not even tax deductible!!
Typically when purchasing a home, a 20% down payment is usually the standard. But, there are cases where this is just not an option and you’ve opted to pay less. Some loans will accepts as little as 0% down. However, this comes with a catch.
When a bank lends money for the purchase of a home, the lender’s risk is usually the difference between the home’s value and the amount outstanding on the loan. So, having a 20% down payment gives the lender a cushion against the costs associated with foreclosure on the chance that a purchaser is unable to pay. But, with housing prices skyrocketing, it isn’t always possible to put 20% down on a home purchase.
So, how does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.
But paying PMI has little upside for the homeowner. Not only does it increase your monthly mortgage payment, but since the payment is lumped into the total mortgage payment, its often isn’t even tax deductible AND is doesn’t reduce your principal. Sure, PMI is great for the bank…they collect your monthly payments and, in the off chance that there is a default, they still get all their money because they’ve got the PMI policy. But as a buyer, you end up paying $40,000, $50,000, $60,000 or more over the term of the policy and you don’t get any benefits.
PMI is a WIN for the Banks and can be a real LOSS for the Homeowner.
let us help you REDUCE or ELIMINATE your PMI Payment
Have equity in your home? Want a lower payment?
An appraisal from J Alexander Grant Appraisal Group can help you get rid of your PMI.
How homebuyers can prevent paying PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take many years to get to the point where the principal is just 20% of the original amount borrowed, so it’s crucial to know how your home has grown in value. After all, every bit of appreciation you’ve accomplished over the years counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict falling home values, be aware that real estate is local. Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things settled down.
A certified, licensed real estate appraiser can help home owners understand just when their home’s equity rises above the 20% point, as it’s a tough thing to know. As appraisers, it’s our job to keep up with the market dynamics of our area. At J Alexander Grant Appraisal Group, we’re masters at analyzing value trends in the Upstate SC, Charlotte Metro area and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually drop the PMI with little effort. At which time, the homeowner can enjoy the savings from that point on.
let us help you REDUCE or ELIMINATE your PMI Payment
Learn more about PMI and the Homeowners Protection Act:
Homeowners Protection Act (HPA or PMI cancellation act) examination procedures