70. A homebuyer received a conventional loan with a down payment of 8% of the purchase price. The mortgage payment (PITI) will be reduced without refinancing when
Answer: B
The mortgage payment (PITI) will be reduced without refinancing when equity reaches 22%.
When the homebuyer’s equity in the property reaches 22%, they can request the removal of private mortgage insurance (PMI), which can significantly reduce their monthly mortgage payment (PITI) without the need for refinancing.
A) Income increases.
While an increase in income may improve the homebuyer's financial situation, it does not directly affect the mortgage payment (PITI). The payment structure remains the same unless changes are made to the loan terms or the loan is refinanced.
B) Equity reaches 22%.
This option is correct as reaching 22% equity allows the homeowner to eliminate private mortgage insurance (PMI) from their monthly payments, thereby reducing the overall mortgage payment (PITI) without needing to refinance. This is a standard practice in mortgage lending.
C) A child is adopted.
The adoption of a child does not have any direct impact on the mortgage payment (PITI). This choice is unrelated to the financial aspects of the mortgage and would not result in any reduction of the monthly payment.
D) The assessed value increases.
An increase in the assessed value of the home may increase the homebuyer’s equity, but it does not directly reduce the mortgage payment (PITI) unless it leads to a refinance or changes in the terms of the loan. Therefore, this option is not correct for the context of the question.
Conclusion
The correct answer is B, as reaching 22% equity allows for the potential removal of PMI, directly leading to a reduction in the monthly mortgage payment. Options A, C, and D do not provide mechanisms for reducing the PITI without refinancing, making them incorrect in this context. Thus, understanding how equity impacts mortgage payments is crucial for homeowners.