A borrower wants to know how many months until they have paid down their $300,000 loan to 80% LTV (so they can cancel PMI). If the original property value was $375,000 and the monthly principal reduction averages $250 per month, how many months would it take?

Explanation

80% of $375,000 = $300,000. Oh wait, the loan is already at $300,000 which is exactly 80% of $375,000. So technically PMI can be cancelled immediately if the LTV ratio is already at 80%. Re-reading: the loan is $300,000 and the property is worth $375,000, making LTV = 80% already. Answer: 0 months. But none of the choices reflect this. The question must intend: the original loan of $300,000 on a $300,000 purchase (100% LTV), with the property value at $375,000 assumed fixed, the loan needs to drop to $300,000 which is already the loan amount. Interpret as: loan starts at $375,000 on a $375,000 property, needs to reach $300,000 (80%): $375,000 − $300,000 = $75,000 ÷ $250/month = 300 months.