Alford & Associates can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when buying a house. Since the risk for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuationson the chance that a borrower defaults.
Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional policy takes care of the lender in case a borrower doesn't pay on the loan and the market price of the house is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be costly to a borrower. Opposite from a piggyback loan where the lender takes in all the deficits, PMI is advantageous for the lender because they obtain the money, and they receive payment if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, wise home owners can get off the hook a little earlier.
Because it can take many years to arrive at the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've gained over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends signify falling home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home might have secured equity before things simmered down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above 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 Alford & Associates, we're masters at analyzing value trends in Charlotte, Mecklenburg 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 remove the PMI with little trouble. At which 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: