Let Ken Colley & Associates Inc. help you learn if you can get rid of your PMI
When getting a mortgage, a 20% down payment is typically the standard. Because the risk for the lender is oftentimes only the remainder between the home value and the sum due on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and regular value fluctuationson the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower defaults on the loan and the value of the property is less than what is owed on the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. It's beneficial for the lender because they secure the money, and they get the money if the borrower is unable to pay, unlike a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can prevent bearing the expense of PMI
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook a little early.
Considering it can take many years to get to the point where the principal is only 20% of the original amount borrowed, it's crucial to know how your home has increased in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends predict declining home values, realize that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have acquired equity before things calmed down.
The toughest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Ken Colley & Associates Inc., we know when property values have risen or declined. We're masters at determining value trends in Fort Smith, Sebastian County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: