Morteza Tehrani can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. Considering the risk for the lender is usually only the difference between the home value and the amount due on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value variations in the event a borrower is unable to pay.During the recent mortgage boom of the last decade, it was common to see lenders making deals with down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the market price of the home is lower than what is owed on the loan. Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be costly to a borrower. Separate from a piggyback loan where the lender absorbs all the deficits, PMI is beneficial for the lender because they collect the money, and they get the money if the borrower doesn't pay.
How can homeowners avoid paying PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law pledges that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, smart home owners can get off the hook ahead of time.It can take a significant number of years to arrive at the point where the principal is just 80% of the initial amount of the loan, so it's crucial to know how your California home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So what's the reason for paying 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 reflecting the national trends and/or your home might have gained equity before things declined. The hardest thing for most people to figure out is just when their home's equity rises above the 20% point. An accredited, California licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Morteza Tehrani, we're experts at analyzing value trends in Mission Viejo, Orange County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often cancel the PMI with little effort. At that 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
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