Let Gregory James Company, Inc. help you figure out if you can get rid of your PMI
When getting a mortgage, a 20% down payment is usually the standard. The lender's liability is oftentimes only the remainder between the home value and the sum remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value fluctuations in the event a borrower defaults.
The market was taking down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower defaults on the loan and the value of the home is less than what the borrower still owes on the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they obtain the money, and they receive payment 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 can a homebuyer keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart home owners can get off the hook sooner than expected.
Since it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends indicate decreasing home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home might have gained equity before things cooled off.
The toughest thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Gregory James Company, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in Atlanta, Polk County and surrounding areas. Faced with figures from an appraiser, the mortgage company will most often do away with the PMI with little trouble. At which 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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