A borrower is purchasing a $600,000 home with a first mortgage of $450,000 and a second mortgage of $90,000. They are paying $60,000 down. The first mortgage LTV is 75% and the CLTV is 90%. If the borrower later wants to eliminate PMI, and the property appreciates to $650,000, what would be the new LTV of the first mortgage assuming no principal reduction?
Correct Answer
A) 69.2%
The first mortgage amount remains $450,000, but the property value increased to $650,000. New LTV = $450,000 ÷ $650,000 = 69.2%. Many lenders require LTV to be 80% or lower to remove PMI, so this borrower would qualify for PMI removal based on appreciation alone.
Why This Is the Correct Answer
The first mortgage amount remains $450,000, but the property value increased to $650,000. New LTV = $450,000 ÷ $650,000 = 69.2%. Many lenders require LTV to be 80% or lower to remove PMI, so this borrower would qualify for PMI removal based on appreciation alone.
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