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21 June, 21:47

8. Sam bought a house that costs $500,000. Sam got a 96% LTV loan. The lender demanded that Sam buy private mortgage insurance to insure the portion of the loan over 75% LTV. Suppose 5 years later, Sam's mortgage balance is $400,000. However Sam defaults and his house sells for $220,000 in a foreclosure auction. How much will the mortgage insurance company pay Sam's lender?

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  1. 21 June, 22:01
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    The insurance company will pay the mortage of $400,000

    Explanation:

    Loan value = 96% * $500000

    = $480000

    75% LTV value = $375000

    Portion of loan over 75% LTV = $105000.

    This is the amount insured.

    5 years later, Sam needs $400000 more to pay. But he defaults.

    And he has only paid $100000 of mortgage loan.

    So, insurance company will pay the remaining balance of the amount insured to Sam's lender.

    Therefore, The insurance company will pay the mortage of $400,000.
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Home » Business » 8. Sam bought a house that costs $500,000. Sam got a 96% LTV loan. The lender demanded that Sam buy private mortgage insurance to insure the portion of the loan over 75% LTV. Suppose 5 years later, Sam's mortgage balance is $400,000.
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