Question 37

The mortgage payment (PITI) will be reduced without refinancing when equity reaches 22%.

When the equity in a home reaches 22%, the homebuyer can request the removal of private mortgage insurance (PMI), which is a component of the monthly mortgage payment. This reduction in PMI directly lowers the overall mortgage payment without the need for refinancing.

A) Income increases.

While an increase in income may improve a homebuyer's financial situation, it does not directly affect the mortgage payment (PITI) unless the borrower chooses to refinance or make additional payments towards the principal. Therefore, this option is incorrect.

B) Equity reaches 22%.

This option is correct because when the homeowner has accumulated 22% equity in the property, they can typically eliminate PMI payments, thus reducing their monthly mortgage payment (PITI) without needing to refinance the loan.

C) A child is adopted.

This circumstance does not impact the mortgage payment (PITI) in any direct manner. While adopting a child may affect family finances and budget planning, it does not lead to a reduction in mortgage payments, making this option incorrect.

D) The assessed value increases.

An increase in the assessed value of the property may affect overall equity, but it does not automatically result in a reduction of the mortgage payment (PITI). This option does not guarantee the elimination of PMI or any other payment reduction, rendering it incorrect.

Conclusion

The correct answer is B) Equity reaches 22% because it directly relates to the criteria for removing PMI, which significantly reduces the mortgage payment without refinancing. All other options fail to provide a direct mechanism for reducing the mortgage payment, focusing instead on unrelated factors or circumstances.