Let Kent Taylor & Associates help you figure out if you can cancel your PMIIt's largely understood that a 20% down payment is the standard when getting a mortgage. Since the risk for the lender is usually only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders only asking for down payments of 10, 5, 3 or often 0 percent. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower doesn't pay on the loan and the market price of the home is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender absorbs all the costs, PMI is favorable for the lender because they collect the money, and they get paid if the borrower doesn't pay.
How can a homeowner keep from paying PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on most loans. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, acute home owners can get off the hook sooner than expected.
Considering it can take several years to reach the point where the principal is only 80% of the original amount borrowed, it's important to know how your Texas home has increased in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not conform to national trends and/or your home could have acquired equity before things declined. So even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The hardest thing for almost all homeowners to determine is just when their home's equity goes over the 20% point. An accredited, Texas licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their area. At Kent Taylor & Associates, we're masters at recognizing value trends in Magnolia, Montgomery County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
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