Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment

Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment. Suppose over time you paid down the principal of the loan to $220,000 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 $190,000, determine the amount of the loan’s principal that the lender was unable to recover due to the default. A. $30,000 B. $50,000 C. $240,000 D. $300,000

Solutions

Expert Solution

Amount of the loan against the mortgage initially = 300000 - (20%*300000) = 240,000

Principal repaid = 20,000

Hence, principal outstanding = 240,000 - 20,000 = 220,000 (given in the problem itself)

Sale value of the property = 190,000

Hence, principal lost = 220,000 - 190,000 = 30,000

jeff jeffy answered 1 year ago

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