Let The August Group Inc. help you decide if you can cancel your PMI
A 20% down payment is typically the standard when purchasing a home. Since the liability for the lender is often only the difference between the home value and the amount due on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and typical value fluctuationson the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the market price of the property is less than what the borrower still owes on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. It's favorable for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer keep from bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, keen homeowners can get off the hook sooner than expected.
Considering it can take many years to reach the point where the principal is only 20% of the original amount borrowed, it's crucial to know how your home has grown in value. After all, any appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends signify falling home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At The August Group Inc., we're masters at determining value trends in St Louis, Saint Louis County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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