Ken Colley & Associates Inc. can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is usually the standard. Because the risk for the lender is usually only the remainder between the home value and the sum due on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and typical value changesin the event a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender if a borrower defaults on the loan and the market price of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender consumes all the damages, PMI is money-making for the lender because they acquire the money, and they get the money 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 a homeowner keep from paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Smart home owners can get off the hook a little earlier. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take many years to reach the point where the principal is just 20% of the initial amount borrowed, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home might have secured equity before things calmed down, so even when nationwide trends hint at plunging home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Ken Colley & Associates Inc., we're experts at pinpointing value trends in Fort Smith, Sebastian County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally cancel the PMI with little anxiety. 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: