Jim Taylor can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. The lender's only exposure is often just the remainder between the home value and the balance outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a borrower doesn't pay.During the recent mortgage upturn that our country recently experienced, it became widespread to see lenders only asking for down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the value of the house is less than the balance of the loan. PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. As opposed to a piggyback loan where the lender takes in all the deficits, PMI is advantageous for the lender because they acquire the money, and they are covered if the borrower doesn't pay.
How can homeowners prevent paying PMI?With the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, smart home owners can get off the hook sooner than expected.Since it can take many years to arrive at the point where the principal is only 80% of the initial loan amount, it's necessary to know how your Indiana home has appreciated in value. After all, every bit of appreciation you've obtained over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict falling home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have gained equity before things cooled off. The hardest thing for most people to figure out is whether their home equity has exceeded the 20% point. A certified, Indiana licensed real estate appraiser can definitely help. It's an appraiser's job to understand the market dynamics of their area. At Jim Taylor, we're experts at pinpointing value trends in Columbus, Bartholomew County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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