Currently the housing market has a problem: There are too few homes for sale. Persistently low inventory means that there are a lot of frustrated would-be buyers out there spending weekends at Open Houses. It also has led to home prices continuing to rise at a more than 6 percent clip from a year ago.
Adding to the pressure for homebuyers is the fact that mortgage rates increased to a seven-year high of 4.8 percent in April, pushing the National Association of Realtor’s mortgage affordability index to its lowest level since the end of 2008. Even with prices and mortgage rates up, many still want in on the housing market because they are worried that increases will persist or because renting has become less affordable.
Ideas for savings
As interest rates rise, refinancing becomes less compelling. Refinancing activity has slowed down to 10-year lows, but there may be other ways for current homeowners to save a few bucks. For those who bought property with less than 20 percent down, now is a great time to see if you can eliminate your private mortgage insurance (PMI).
PMI acts as an extra layer of protection for the lender if you stop making payments on your loan. Many don’t focus on PMI after the closing because premiums are usually added to the mortgage payment.
To remove PMI, you need to demonstrate that you have at least 20 percent equity, that your mortgage balance is less than 80 percent of the original value of your home. “Original value” generally means either the contract sales price or the appraised value of your home at the time you bought it, whichever is lower. (If you have refinanced, the appraised value will be calculated as of the time you refinanced.) The equity in your home could have increased due to rising prices or due to additional payments you have made to reduce the principal balance of your mortgage to 80 percent, or a combination of both of those scenarios.
When the mortgage balance drops to 78 percent, the mortgage servicer is supposed to automatically eliminate PMI, but that does not happen as quickly as you might expect.
For my math-challenged pals, to calculate whether your loan balance has fallen below 80 percent of the original value, divide the current loan balance – the amount you still owe – by the original appraised value (most likely, that’s the same as the purchase price).
Jill Schlesinger, CFP, is an Emmy-nominated
CBS News Business Analyst covering the economy,
markets and investing.
See her blog, “Jill on Money” or check her website at
www.jillonmoney.com
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