Finance
In Washington, private mortgage insurance (PMI) on a conventional loan must be automatically cancelled when the borrower's equity reaches what percentage under the Homeowners Protection Act?
A10%
B20%
C22%✓ Correct
D25%
Explanation
Under the federal Homeowners Protection Act (HPA), PMI must be automatically cancelled when the borrower's equity reaches 22% of the original purchase price (LTV drops to 78%) based on scheduled amortization. Borrowers may request cancellation at 20% equity.
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Key Terms to Know
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.
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.
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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