Question
(30 points) Assume you buy a home for $150,000 and this is also the appraisers opinion of value at origination. You get a residential FRM
(30 points) Assume you buy a home for $150,000 and this is also the appraisers opinion of value at origination. You get a residential FRM with monthly payments for 30 years at a contractual interest rate of 3.64%. The LTV is 95% and the lender requires PMI. In what month will PMI automatically cancel (i.e. OLB/V(0) = 78%)? In what month can you call the bank and see whether they will cancel the PMI (i.e. OLB/V(0) = 80%)? If homes like yours appreciate at 3%/year on average, in what month can you get an appraisal and hopefully have the bank cancel the PMI (i.e., OLB/V(q) = 80%)? Hint: V(q) is the likely value of your home q months from origination. Excel will be required to complete this part of the question.
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