Let Gregory James Company, Inc. help you decide if you can cancel your PMI

It's typically understood that a 20% down payment is the standard when getting a mortgage. Considering 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 buffer against the charges of foreclosure, reselling the home, and typical value variationsin the event a borrower is unable to pay.

During the recent mortgage boom of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower doesn't pay on the loan and the worth of the home is lower than the balance of the loan.

PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they obtain the money, and they receive payment if the borrower defaults, unlike a piggyback loan where the lender consumes all the deficits.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How homeowners can avoid paying PMI

The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart home owners can get off the hook ahead of time. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

Since it can take many years to arrive at the point where the principal is only 20% of the original loan amount, it's necessary to know how your home has grown in value. After all, any appreciation you've obtained over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at decreasing home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have acquired equity before things cooled off.

The hardest thing for most home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At Gregory James Company, Inc., we know when property values have risen or declined. We're experts at analyzing value trends in Cedartown, Polk County and surrounding areas. When faced with data from an appraiser, the mortgage company will often remove the PMI with little anxiety. 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year

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