Let The August Group Inc. help you decide if you can cancel your PMI
When buying a house, a 20% down payment is typically the standard. Because the risk for the lender is oftentimes only the remainder between the home value and the amount remaining on the loan, the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value fluctuationson the chance that a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the value of the property is less than the balance of the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible. It's beneficial for the lender because they secure 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 buyers can prevent paying PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, keen homeowners can get off the hook ahead of time.
Since it can take countless years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends indicate plunging home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home might have secured equity before things cooled off.
The hardest thing for many homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their area. At The August Group Inc., we know when property values have risen or declined. We're experts at analyzing value trends in St Louis, Saint Louis County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little trouble. 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:
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