What is PMI?
PMI, or private mortgage insurance, is an insurance that homebuyers are required to purchase if down payment on the real estate is low. In most cases PMI is required if a down payment is less than 20 percent of the sale price or appraisal. Originally private mortgage insurance was created by private insurers to safeguard their investment in case the homebuyer defaulted on the loan.

Due to the Private mortgage insurance numerous new Fremont homeowners have benefited because they are required to front a smaller down payment. As real estate peaks, potential buyers are required to pay less at time of purchase. PMI allows these real estate buyers to purchase property sooner. Also, private mortgage insures can help homeowners qualify for a greater loan amount.

The private mortgage insurance fluctuates depending on the down payment amount and mortgage loan. Typically the PMI equals one half of one percent of the total amount of the loan. For instance, you purchased a $200,000 real estate and your down payment was 10 percent of the total. The insurer will multiply the remaining 90 percent by .005 percent. The result, $900, is the yearly PMI for the real estate, which is then divided to monthly installments.

As time progresses and the Fremont homeowner continue their payments on the real estate until the private mortgage insurance is not longer needed. A general rule is to contact the PMI provider when you reach 80 percent equity and can be cancelled beyond this point. A law was passed through the Homeowner's Protection Act in 1999 that states the lender must contact the homebuyers of how many years and months to pay over the 20 percent to cancel the PMI. It is still suggested that you be responsible and keep records of this on your own.

The same act also gives lenders the power to make buyers continue the private mortgage insurance until 50 percent equity. The act applies the homebuyers considered high-risk borrowers. In some instances, homebuyers may be required to have private mortgage insurance throughout the loans entirety.

New ways to avoiding the private mortgage insurance has surface and become popular. In cases even when you cannot front the 20 percent down payments, a shortened PMI has occurred. Paying more interest on the mortgage loan is a common strategy to avoid extended private mortgage insurance. A major plus to this option is the mortgage interest becomes tax deductible.

Using an '80-10-10' loan is another way to possibly bypass paying private mortgage insurance. This strategy requires the homebuyer to take out two loans and having a 10 percent down payment on the home's total. The second loan, covering 10 percent, requires a higher interest rate. The interest charges are very easy to close because the loan is of a lower amount. In this strategy the mortgage interest is tax deductible. If you can prove that your home has increase significantly in value, the private mortgage insurance can possibly be discontinued. If the value has increased, the 20 percent of the equity you need may have been met to cancel the PMI. Evidence of this increase should be submitted to your lender. This process is very lengthy and you should expect up to two years for a decision.

Lastly, changes in your credit can easily affect the private mortgage insurance being paid to your lender.

Thank you for taking the time to read the information I have made available to you.  If you are considering buying or selling property, planning to relocate, looking for Fremont homes for sale, or looking for any other information about real estate in the Fremont real estate market, or the surrounding areas, please visit the most complete website dedicated to everything real estate related www.ClydeBrownHomes.com.

If you or someone you know are in need of a competent and experienced Bay Area Realtor, or have real estate or mortgage related questions, please feel free to contact me I will be more than glad to answer your questions. Call me at 800-839-0665 or email me at Clyde@ClydeBrownHomes.com. For all your East Bay cities needs including Fremont, Newark, Union City, Hayward, Oakland, Santa Clara, Milpitas, Dublin, Livermore, Pleasanton, and San Ramon. Clyde Brown Legacy Real Estate & Associates.