Have equity in your home? Want a lower payment? An appraisal from The August Group Inc. can help you get rid of your PMI.
It's typically inferred that a 20% down payment is common when getting a mortgage. Since the risk for the lender is oftentimes only the difference between the home value and the amount due on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and natural value variationson the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the added risk of the low down payment with Private Mortgage Insurance or PMI. This additional policy protects the lender in case a borrower defaults on the loan and the value of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender consumes all the damages, PMI is favorable for the lender because they collect 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 homeowners can avoid bearing the expense of 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 beginning loan amount. The law stipulates that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy home owners can get off the hook ahead of time.
Since it can take countless years to reach the point where the principal is only 20% of the original loan amount, it's essential to know how your home has increased in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends indicate falling home values, you should understand 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 tough thing to know. It's an appraiser's job to know the market dynamics of their area. At The August Group Inc., we know when property values have risen or declined. We're experts at determining value trends in St Louis, Saint Louis County and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At which 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:
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