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What is PMI Percentage?

What is PMI Percentage?
PMI refers to private mortgage insurance and PMI percentage is the rate of insurance required for properties that are acquired by borrowers who may default on the policy. This particular insurance policy is some sort of a guarantee for lenders in case the borrowers are not able to fully pay a particular mortgage loan.

PMI’s are typically imposed on mortgage loans in which borrowers paid less than 20% of the total property value. PMI percentage or rates commonly stand at 1% up to 6% of the total loan amount and is computed per year depending on the loan term. PMI percentages may also vary depending on a variety of factors like downpayment amount or value, credit score of the borrower involved in the transaction, type of mortgage loan wherein one can opt for a fixed type of interest rate or adjustable type, and the loan term or duration. And since PMI percentages or rates vary according to the loan term, it is expected to have variable values when comparing mortgage loans with a 10-year term versus a mortgage loan with a 20-year term.

PMI percentage or rates are not always part of computing mortgage payments for a particular loan. These are only applied to specific instances like downpayments that are considered too low by the lender or bank for example. Many people try to follow the requirements of acquiring a particular mortgage loan in terms of downpayment to avoid being imposed a PMI-insurance policy. These PMIs do not contribute in any way to the loan payment or actual mortgage payment; so many people try to shelve out with the required equity so as not to have the PMI imposed on their loan.

But looking at both the sides of the lenders and borrowers, experts believe PMI brings benefit to both the lender and the borrowers. Lenders will have protection from loan default, while borrowers will have lower and competitive PMI rates if they are able to provide the required equity.

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Posted by Erwin Z on May 25th, 2011 and filed under Finance & Investing. You can follow any responses to this entry through the RSS 2.0. You can leave a response via following comment form or trackback to this entry from your site