A buyer in Alexandria, Louisiana, purchases a home for $250,000. She obtains a mortgage at 90% loan-to-value. The lender requires private mortgage insurance (PMI) at an annual rate of 0.80% of the original loan amount. What is the buyer's monthly PMI payment?
Correct Answer
A) $150.00
Step 1 — Calculate the loan amount: $250,000 × 90% = $225,000. Step 2 — Calculate the annual PMI premium: $225,000 × 0.80% = $225,000 × 0.0080 = $1,800 per year. Step 3 — Calculate the monthly PMI payment: $1,800 ÷ 12 = $150.00 per month. PMI is calculated on the loan amount, not the purchase price, and the annual premium is divided by 12 for the monthly payment.
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Key Terms:
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