Anderson & Associates can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when buying a house. Because the liability for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and regular value variationsin the event a purchaser defaults.
During the recent mortgage upturn of the last decade, it became widespread to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This added policy guards the lender if a borrower defaults on the loan and the value of the property is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. It's money-making for the lender because they secure the money, and they get paid if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners prevent paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, wise home owners can get off the hook ahead of time.
Since it can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends forecast falling home values, you should understand that real estate is local.
The hardest thing for most homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to recognize the market dynamics of our area. At Anderson & Associates, we're experts at determining value trends in Ridgefield, Clark 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 drop the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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