Matthew Wood Appraisal Service, LLC can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is usually the standard. The lender's only exposure is usually just the difference between the home value and the balance due on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and typical value changes in the event a borrower is unable to pay.The market was taking down payments discounted to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional policy protects the lender in the event a borrower defaults on the loan and the market price of the property is less than what is owed on the loan. PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. Instead of a piggyback loan where the lender consumes all the costs, PMI is favorable for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
How buyers can prevent paying PMIWith the passage of The Homeowners Protection Act of 1998, lenders are required to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on most loans. Savvy home owners can get off the hook beforehand. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.It can take many years to reach the point where the principal is just 80% of the original amount of the loan, so it's crucial to know how your Maryland home has grown in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends indicate declining home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have gained equity before things cooled off. The toughest thing for most homeowners to determine is just when their home's equity rises above the 20% point. An accredited, Maryland licensed real estate appraiser can surely help. It's an appraiser's job to keep up with the market dynamics of their area. At Matthew Wood Appraisal Service, LLC, we're experts at analyzing value trends in Hancock, Washington County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often cancel the PMI with little trouble. At which 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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