Question

If you buy a home with less than 20% down, you will pay an additional monthly fee, PMI (private mortgage insurance), until you reach 80% equity. Keep track of when you reach 80% equity so you can request to have your PMI removed. Ken Buckmiller's home recently appraised at $290,000. His mortgage was for $275.000 at 5% for 30 years with PMI of $229.17 per month. What is his monthly payment plus PMI? His mortgage balance is currently $222.990. Has he reached 80% equity? LU 15-1(2)

Answer 1

Monthly payment formula =		[P x R x (1+R)^N]/[(1+R)^N-1]
a	P x R	((275,000*(0.05/12))) = 1,145.8333
b	(1+R)^N]	((1+(0.05/12))^360) = 4.4677
c	(1+R)^N-1	(1+(0.05/12))^360-1 = 3.4677
d	b/c	4.4677/3.4677 = 1.2884
e	a*e	1,145.8333*1.2884 = 1,476.2595
	N = 12*30 =360
	P = 275,000
	R = monthly interest rate = 0.05/12
Additional monthly fee = $229.17
Monthly Payment = $1476.26
Total monthly payment = $229.17+$1,476.26 = $1,705.43
Mortgage value / Market value of home = 222,990/290,000 = 76.86%
Current Mortgage balance is $222, 900 which is 76.89% of market value of home i.e. $290,000. It means that now the equity value is 23.11% which is higher than the 20% equity requirement hence additional monthly fee of $229.17 can be removed now.

Answer 2

Monthly payment: $1705.92

Equity: 23.11%