Gregory W. Easter, IFA can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is typically the standard. Since the risk for the lender is usually only the difference between the home value and the sum due on the loan, the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and typical value changes in the event a borrower doesn't pay.
The market was accepting down payments dropping to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the value of the property is less than what is owed on the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible. It's profitable for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the deficits.
How can homeowners prevent bearing the cost of PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, savvy homeowners can get off the hook a little early.
Since it can take a significant number of years to get to the point where the principal is just 80% of the initial amount borrowed, it's essential to know how your Tennessee home has appreciated in value. After all, every bit of appreciation you've accomplished 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 may not adhere to national trends and/or your home could have gained equity before things cooled off. So even when nationwide trends indicate falling home values, you should understand that real estate is local.
An accredited, Tennessee licensed real estate appraiser can help homeowners figure out just when their home's equity goes over the 20% point, as it's a hard thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Gregory W. Easter, IFA, we're masters at identifying value trends in Nashville, Jefferson County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. At that time, the home owner can retain the savings from that point on.
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