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The August Group Inc. can help you remove your Private Mortgage Insurance

When buying a house, a 20% down payment is typically the standard. Because the risk for the lender is generally only the remainder between the home value and the amount remaining on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuationson the chance that a borrower defaults.

Lenders were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan guards the lender in case a borrower defaults on the loan and the value of the property is less than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. It's advantageous for the lender because they acquire the money, and they receive payment if the borrower doesn't pay, unlike 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 homeowners can prevent paying PMI

The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Keen home owners can get off the hook sooner than expected. The law stipulates that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.

It can take many years to arrive at the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home may have secured equity before things calmed down, so even when nationwide trends forecast plunging home values, you should realize that real estate is local.

The difficult thing for most homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to understand the market dynamics of their area. At The August Group Inc., we're masters at analyzing value trends in St Louis, Saint Louis County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year

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