Question

25. A professor wants to buy a retirement condo in Arizona that can be purchased for $250,000. (a) She has $70,000 saved as a down payment. Show (or explain) why PMI is not required. The professor qualifies for a 3.00% fixed rate 15-year mortgage for $180,000. The principal and interest payment on this mortgage works out to be $1243 per month (without taxes, etc.) (b) Property tax is 1.5% of the property value per year. How much does this add to the monthly payment, to the nearest dollar? (c) Homeowner's insurance premiums ($900 per year), property tax, and the condo association fee of $150 per month are collected as part of the total monthly payment. What is the professor's total monthly payment?

Answer 1

a]

PMI is usually required if the down payment is less than 20% of the cost of the house.

In this case, down payment % = $70,000 / $250,000 = 28%

As the down payment is more than 20% of the cost of the house, PMI is not required

b]

monthly tax payment = cost of house * 1.5% / 12

monthly tax payment = $250,000 * 1.5% / 12

monthly tax payment = $312.50

c]

total monthly payment = principal and interest + tax + insurance + fee

Monthly insurance = yearly insurance / 12 = $900 / 12 = $75

total monthly payment = $1,243 + $312.50 + $75 + $150

total monthly payment = $1,781