Let Gregory James Company, Inc. help you discover if you can cancel your PMI
It's generally known that a 20% down payment is common when getting a mortgage. The lender's liability is often only the difference between the home value and the sum remaining on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and regular value changes on the chance that a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the value of the property is less than the loan balance.
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 pricey to a borrower. It's beneficial 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 absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, savvy homeowners can get off the hook ahead of time.
It can take many years to reach the point where the principal is only 20% of the original amount of the loan, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home could have acquired equity before things cooled off, 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 home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to know the market dynamics of their area. At Gregory James Company, Inc., we know when property values have risen or declined. We're masters at recognizing value trends in Cedartown, Polk County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At that 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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