Let The August Group Inc. help you decide if you can get rid of your PMI
A 20% down payment is typically the standard when getting a mortgage. Since the liability for the lender is oftentimes only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuationsin the event a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender if 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 lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. It's lucrative for the lender because they acquire the money, and they receive payment if the borrower defaults, contradictory to a piggyback loan where the lender consumes 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 home owners prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Keen homeowners can get off the hook beforehand. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount of the loan, so it's important to know how your home has grown in value. After all, any appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Even when nationwide trends hint at plunging home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have gained equity before things simmered down.
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 hard thing to know. It's an appraiser's job to understand the market dynamics of their area. At The August Group Inc., we're masters at identifying value trends in St Louis, Saint Louis 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 eliminate the PMI with little trouble. At that time, the homeowner 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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