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. The lender's risk is oftentimes only the difference between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and natural value variations in the event a borrower is unable to pay.
Lenders were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added plan guards the lender if a borrower defaults on the loan and the market price of the house is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they collect the money, and they get paid if the borrower defaults, contradictory to a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid paying PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook a little early.
Because it can take many years to arrive at the point where the principal is just 20% of the original amount borrowed, it's necessary to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be minding the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends predict plunging home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to keep up with 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 data from an appraiser, the mortgage company will usually eliminate the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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