Ken Colley & Associates Inc. can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when getting a mortgage. The lender's liability is generally only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations in the event a purchaser is unable to pay.
Banks were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan covers the lender in case a borrower is unable to pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the damages, PMI is money-making for the lender because they obtain the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers avoid paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen homeowners can get off the hook a little early. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount of the loan, so it's necessary to know how your home has grown in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends predict decreasing home values, realize that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have secured equity before things simmered down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It's an appraiser's job to know the market dynamics of their area. At Ken Colley & Associates Inc., we're masters at pinpointing value trends in Fort Smith, Sebastian County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally remove the PMI with little trouble. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: