Mary Svevo decides to move to move to Montauk, NY after she quits her job in Lacuna, Inc. She also determines to purchase a single- family home there. The total acquisition price of the house is $1,295,000, and 90% of it would be financed with a 30- year FRM. The mortgage payments are made at the end of each month before maturity. The interest rate on the mortgage loan is 8.40%. Also, the lender requires her to obtain private mortgage insurance to protect aganist the losses due to default.
1. Determine the size of down payment
2. Determine the crossover point of this mortgage loan.
3. Suppose Mary defaults after the 25th payment and the house is thus sold for $1,100,000 to compensate the lender's losses. Given the private mortgage insurance protects the lender for losses up to 35% of the loan, determine the net loss of the lender and the insurance company.
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