Ken Colley & Associates Inc. can help you remove your Private Mortgage Insurance

A 20% down payment is typically the standard when purchasing a home. The lender's liability is often only the remainder between the home value and the amount due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value changes in the event a purchaser is unable to pay.

During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the home is less than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. Contradictory to a piggyback loan where the lender consumes all the costs, PMI is profitable for the lender because they secure the money, and they get the money 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 buyers can prevent bearing the expense of PMI

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart home owners can get off the hook sooner than expected. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.

Since it can take many years to reach the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has grown in value. After all, every bit of appreciation you've gained over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends indicate plummeting home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home may have gained equity before things settled down.

An accredited, 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. It is an appraiser's job to keep up with the market dynamics of their area. At Ken Colley & Associates Inc., we're masters at identifying value trends in Fort Smith, Sebastian 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 do away with the PMI with little effort. At which time, the homeowner 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