Taylor Appraisal Service can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. The lender's only risk is generally just the difference between the home value and the balance due on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and typical value variations on the chance that a borrower doesn't pay.
During the recent mortgage boom that our country recently experienced, it became widespread to see lenders reducing down payments to 10, 5 or sometimes 0 percent. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the market price of the home is less than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. As opposed to a piggyback loan where the lender takes in all the deficits, PMI is money-making for the lender because they collect the money, and they are covered if the borrower defaults.
How can homeowners keep from bearing the cost of PMI?The Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically terminate 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, acute home owners can get off the hook a little earlier.
Considering it can take several years to get to the point where the principal is only 80% of the initial amount of the loan, it's crucial to know how your Alabama home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends signify decreasing home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have gained equity before things simmered down.
The difficult thing for almost all homeowners to figure out is just when their home's equity goes over the 20% point. A certified, Alabama licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with the market dynamics of their area. At Taylor Appraisal Service, we're masters at analyzing value trends in Albertville, Marshall County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year