Finances, Insurance and You

Any loan not guaranteed or subsidized by the government or it's agencies is called a conventional loan. With a conventional loan the lenders use as a standard an 80% loan to value which after the buyers good credit has been established is considered a safe loan. Many times the buyer is not able to pay 20% of the purchase price as a down payment and the lender will consider, usually at a higher interest rate, a 90% or higher LTV. In this event the lender will require private mortgage insurance ( PMI ). This insurance will cover the lender for the difference over the 80% LTV, in the event of the purchaser's default on the loan. The initial PMI preminum is paid at closing and the renewal preminum is added to the interest rate of the mortgage, usually around one half a percent or more. This PMI is only required for the amount over the 80% LTV. As the mortgage matures and the principal amount has been substantially reduced or the home owner has made some big improvements to add to the value of the home, the LTV may fall below the 80%. In this event the homeowner may request an evaluation to establish the home's current value, called a certificate of value. The lender will request an appraisal or a brokers price opinon to establish current value, usually paid by the homeowner. Once the value has been established and if the principal amount of the mortgage is below the 80% LTV, the homeowner may request that the PMI be cancelled and unless the homeowner has been more than 30 days late on their payments or their creditworthiness has changed drastically, the lender will cancel the PMI and the mortgage payments will be reduced by the amount of the renewal preminum. It is very important that the homeowner keep track of the principal amount of their mortgage as the mortgage matures because the cancellation of the PMI could amount to a substantial savings and some lenders will not notify you and continue to collect preminums that are not needed. Any questions or clarification call or e-mail Larry or Jo Ann Thomas at 628-2903 or 545-9249 larrythomasbrep@msn.com