Ken Colley & Associates Inc. can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when buying a house. The lender's risk is oftentimes only the difference between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
Banks were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to handle the increased risk of the small down payment with Private Mortgage Insurance or PMI. This added plan covers the lender in the event a borrower is unable to pay on the loan and the worth of the property is lower than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender consumes all the damages, PMI is profitable for the lender because they acquire the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook a little early. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take many years to reach the point where the principal is just 20% of the original amount borrowed, so it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends predict plunging home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things calmed down.
The toughest thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to understand the market dynamics of their area. At Ken Colley & Associates Inc., we know when property values have risen or declined. We're masters at analyzing value trends in Fort Smith, Sebastian County and surrounding areas. Faced with data from an appraiser, the mortgage company will often do away with the PMI with little effort. 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: