Have equity in your home? Want a lower payment? An appraisal from Ken Colley & Associates Inc. can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is typically the standard. Considering the liability for the lender is often only the remainder between the home value and the amount due on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and typical value changesin the event a borrower doesn't pay.
The market was taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy guards the lender in case a borrower is unable to pay on the loan and the value of the property is less than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they obtain the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook a little early.
It can take many years to reach the point where the principal is only 20% of the initial amount borrowed, so it's important to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be following the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends hint at plummeting home values, you should understand that real estate is local.
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 hard thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Ken Colley & Associates Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Fort Smith, Sebastian County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often cancel the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: