Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down-payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid. down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lender's loss of principal be taking into consideration. the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan.)
Suppose you have just purchased your first home for $300,000. At the time of purchase you could only afford to commit to a down-payment of $15,000. In order to make the loan, the lender requires you to obtain private mortgage insurance (PMI) on their behalf. Suppose over time you paid. down the principal of the loan to $280,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $228,000, what would the lender's loss of principal be taking into consideration. the protection of mortgage insurance? (Let's assume that the PMI in this case covers the top 30% of the loan.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose you have just purchased your
first home for $300,000. At the time of
purchase you could only afford to
commit to a down-payment of
$15,000. In order to make the loan, the
lender requires you to obtain private
mortgage insurance (PMI) on their
behalf. Suppose over time you paid
down the principal of the loan to
$280,000 and at that point in time you
can no longer make any mortgage
payments (i.e., you default on the
loan). If the lender were to foreclose on
your property and sell it for $228,000,
what would the lender's loss of
principal be taking into consideration
the protection of mortgage insurance?
(Let's assume that the PMI in this case
covers the top 30% of the loan.)
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