suppose you are thinking about purchasing a small office building for $1,500,000. the 30 year fixed rate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. assume you were to default and go into foreclosure in year 10 of this loan. if the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of pmi?

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04-11-2022
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suppose you are thinking about purchasing a small office building for $1,500,000. the 30 year fixed rate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. assume you were to default and go into foreclosure in year 10 of this loan. if the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of pmi?

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tutorconsortium125 tutorconsortium125 · Answer 1 · 2022-11-08T01:04:04-05:00

$352,696 lender stand to lose in the absence of pmi. A borrower may be required to PMI as a condition of obtaining a conventional mortgage loan.

What is Private Mortgage Insurance (PMI) ?

Private mortgage insurance (PMI) is a type of insurance that a borrower might be required to buy as a condition of a conventional mortgage loan. When a buyer puts down less than 20% of the home's price, the majority of lenders demand PMI.

In contrast to most insurance types, this one safeguards the lender's investment in the house, not the policyholder. However, PMI enables some people to purchase a home more quickly. PMI makes it possible for people to get financing if they decide to put down between 5% and 19.99% of the home's cost.

It does, however, incur additional monthly expenses. Until they have built up enough equity in the property that the lender no longer views them as high-risk, borrowers must continue to pay their PMI.

Formula for calculating PMI :Divide the loan amount by the property value. Then multiply by 100 to get the percentage. If the result is 80% or lower, your PMI is 0%, which means you don't have to pay PMI.

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