Let Ken Colley & Associates Inc. help you figure out if you can get rid of your PMI
It's widely understood that a 20% down payment is the standard when buying a house. The lender's liability is usually only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value changes on the chance that a borrower defaults.
The market was accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the property is less than what is owed on the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. Separate from a piggyback loan where the lender consumes all the losses, PMI is lucrative for the lender because they collect 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 home buyers can refrain from paying PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Savvy home owners can get off the hook sooner than expected. The law guarantees that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
Considering it can take many years to get to the point where the principal is only 20% of the original loan amount, it's necessary to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends indicate falling home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home could have secured equity before things calmed down.
The difficult thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to know the market dynamics of their area. At Ken Colley & Associates Inc., we're experts at analyzing value trends in Fort Smith, Sebastian County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally do away with 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: