A & B Tax Service can help you remove your Private Mortgage Insurance

When buying a house, a 20% down payment is usually the standard. The lender's risk is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and regular value changes in the event a borrower is unable to pay.

During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower doesn't pay on the loan and the worth of the house is lower than what is owed on the loan.

Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they obtain the money, and they get the money if the borrower defaults.

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

How can home buyers prevent paying PMI?

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

Because it can take countless years to arrive at the point where the principal is only 20% of the original amount borrowed, it's essential to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends forecast falling home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have acquired equity before things calmed down.

An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At A & B Tax Service, we're masters at identifying value trends in Sturtevant, Racine 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 homeowner can relish 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