Question

In: Finance

Sam bought a house that costs $500,000. Sam got a 95% LTV loan. The lender demanded...

Sam bought a house that costs $500,000. Sam got a 95% 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?

Solutions

Expert Solution

House cost = $500,000

Quantum of loan insured = (95% - 75%) * $500,000
= 20% * $500,000
= $100,000.

Mortgage balance = $ 400,000

Proceeds from sale of house = $ 220,000

Shortfall for bank = $400,000 - $220,000 = $180,000

Payment by the insurance company to the lender = $180,000 - $100,000
= $80,000.

Payment by the insurance company to the lender = $80,000.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Sam bought a house that costs $500,000. Sam got a 95% LTV loan.
Sam bought a house that costs $500,000. Sam got a 95% 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?  
A lender makes a 70% LTV convertible mortgage loan at a below-market rate of 6.5% on...
A lender makes a 70% LTV convertible mortgage loan at a below-market rate of 6.5% on a property selling for $16,500,000. The term of the loan is 20 years; however, the lender has a conversion option at the end of the 5th year. At the end of the 5th year, the lender can convert their debt position into a 50% ownership stake in the property. If the property appreciates at 4.5% per year over those first five years, should the...
Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got...
Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75% and monthly payments. The reset margin on the loan is 300 basis points above 1 year CMT. The index was 1% at the time of origination. Tim also had to pay 3 points for this loan. Suppose the index rate will remain 1% for the life of the loan. Compute the IRR...
Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got...
Tim wants to buy an apartment that costs $750,000 with an 85% LTV mortgage. Tim got a 30 year, 3/1 ARM with an initial teaser rate of 3.75% and monthly payments. The reset margin on the loan is 300 basis points above 1 year CMT. The index was 1% at the time of origination. Tim also had to pay 3 points for this loan. Suppose the index rate will remain 1% for the life of the loan. Compute the true...
$200,000 house at 5.0% interest, 30 year loan, the LTV is 90%. Assume that the PMI...
$200,000 house at 5.0% interest, 30 year loan, the LTV is 90%. Assume that the PMI has an upfront premium of 2% and an annual premium of 0.2%. 1. How much is the upfront PMI payment and how much is the monthly PMI payment? 2. How many months you have to pay PMI (when can you call your lender to request drop PMI payment)? 3. How many months your lender have to drop your PMI payment?
to get a 10% return on a house that i bought this year for $500,000 how...
to get a 10% return on a house that i bought this year for $500,000 how much should i sell it for next year? step by step how to solve.
Aya and Harumi would like to buy a house and their dream house costs $500,000. They...
Aya and Harumi would like to buy a house and their dream house costs $500,000. They have $50,000 saved up for a down payment but would still need to take out a mortgage loan for the remaining $450,000 and they’re not sure whether they could afford the monthly loan payments. The bank has offered them an interest rate of 4.25%, compounded monthly. How much would they have to be able to afford to pay each month in order to pay...
A few years ago, you got married and bought a house with an adjustable rate mortgage...
A few years ago, you got married and bought a house with an adjustable rate mortgage with the following terms: Loan: $240,000 Term: 20 years Initial Rate: 4% Margin: 2% over the Index Rate Lifetime Max: 4.5% The index rate was 2% in year 1, 1.5% in year 2, 4% in year 3, 1% in year 4, and 1% in year 5. a) What is your loan balance at year 5? (5pts) b) What is the effective interest rate is...
A few years ago, you got married and bought a house with an adjustable rate mortgage...
A few years ago, you got married and bought a house with an adjustable rate mortgage with the following terms: Loan: $240,000 Term: 20 years Initial Rate: 4% Margin: 2% over the Index Rate Lifetime Max: 4.5% The index rate was 2% in year 1, 1.5% in year 2, 4% in year 3, 1% in year 4, and 1% in year 5. a) What is your loan balance at year 5? (5pts) b) What is the effective interest rate is...
A few years ago, you got married and bought a house with an adjustable rate mortgage...
A few years ago, you got married and bought a house with an adjustable rate mortgage with the following terms:            Loan:               $240,000             Term:              20 years            Initial Rate:      4%            Margin:          2% over the Index Rate            Lifetime Max: 4.5% The index rate was 2% in year 1, 1.5% in year 2, 4% in year 3, 1% in year 4, and 1% in year 5. What is your loan balance at year 5? What is the effective interest rate is paid off after year 5?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT