Key insights
- Rising values can mean more to pay at tax time, so some homeowners dread receiving their increased Estimated Market Value
- Even if you're not selling now, a higher home value can benefit you in various ways
- Wishing for a lower home value is counter-intuitive; if you ever need to sell in a hurry, you'll want your home value to be significantly higher than what you paid for it
When home prices rise, as they have been for the last few years across Minnesota and western Wisconsin, many homeowners may become frustrated by the increase in their annual property taxes. While it's not expected that you celebrate a higher tax bill, there are various reasons that homeowners should accept rising values as a good thing.
Here are insights you can use when assessing your home's rising value and how it affects you.
Short-term benefits of a higher property value
If you didn't put down a hefty down payment when you purchased your home, you may pay mortgage insurance — either private mortgage insurance (PMI) on a conventional loan, or mortgage insurance premium (MIP) on an FHA loan. These insurance payments can add up; an FHA borrower with a $250,000 loan can expect to pay as much as $30,000 in MIP over the life of their loan.
In short, these insurance payments are based on the level of risk the lender is taking to loan you money. When your home's value rises, the loan becomes less risky to the lender because its loan-to-value ratio decreases. As a result, you can cancel your insurance premiums when you have reached a lower loan-to-value ratio.
Conventional loan borrowers paying monthly premiums may cancel their PMI when their loan-to-value ratio reaches 80 percent; it will automatically be canceled when the loan-to-value ratio reaches 78 percent.
However, if you are an FHA borrower, you cannot currently remove the monthly mortgage insurance even if you reach 78 percent loan to value. Instead, you are required to pay it over the life of the loan.
In short, a small uptick in your property taxes may signify that your home's value (and equity) is rising. And in the case of a conventional loan, you may soon be able to pay less each month by canceling your mortgage insurance.
The long-term effects of a higher property value
Explaining the long-term benefits of a higher property value is far less complicated. In short, surprising circumstances can arise that cause you to sell your home — even if you swear that you will never, ever leave it.
Perhaps you'll outgrow the quirks you love now, or maybe it'll be far too much space after your kids grow up. Maybe you'll be offered your dream job on the west coast and have to pack up and move on. In short, you never know what the future holds, so having a higher potential sales price on your property means that you won't lose money if (and when) you eventually come to sell it.
Wondering how to check your home's value?
The tax-assessed Estimated Market Value may not reflect current market conditions, so you shouldn't rely on it as a real-time indicator of your home's value. To get a free, no obligation pricing analysis, reach out today and one of our 2,500 neighborhood experts will get in touch.
For more information on what to look for as you consider selling your home, follow #SellerInsights on Twitter, Facebook, YouTube and Instagram.
