Ken Colley & Associates Inc. can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when purchasing a home. The lender's liability is often only the remainder between the home value and the sum due on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changes in the event a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This added policy takes care of the lender if a borrower defaults on the loan and the worth of the home is less than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. It's beneficial for the lender because they collect the money, and they get the money if the borrower defaults, separate from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers keep from paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, savvy home owners can get off the hook a little early.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's important to know how your home has appreciated in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends predict falling home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have gained equity before things calmed down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It is an appraiser's job to understand the market dynamics of their area. At Ken Colley & Associates Inc., we're experts at identifying 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 usually cancel the PMI with little effort. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: