Finance
Indiana's Homeowner Protection Act provides that PMI on a conventional mortgage must be automatically cancelled when:
AThe loan is 5 years old
BThe loan balance reaches 78% of the original purchase price based on scheduled payments✓ Correct
CThe borrower requests cancellation once
DThe loan balance reaches 90% of the original value
Explanation
Under the federal Homeowners Protection Act (HPA), lenders must automatically cancel PMI when the mortgage balance reaches 78% LTV (based on the original property value/purchase price) through scheduled payments.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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