Let Ken Colley & Associates Inc. help you figure out if you can get rid of your PMI
It's largely understood that a 20% down payment is the standard when getting a mortgage. Since the liability for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuationsin the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the market price of the home is less than what the borrower still owes on the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. Different from a piggyback loan where the lender takes in all the losses, PMI is advantageous for the lender because they acquire the money, and they receive payment 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 can home owners prevent bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise home owners can get off the hook a little earlier.
It can take many years to reach the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, every bit of appreciation you've acquired over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify falling home values, realize that real estate is local. Your neighborhood might 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 rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Ken Colley & Associates Inc., we know when property values have risen or declined. We're experts at determining value trends in Fort Smith, Sebastian County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often drop 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: