California Real Estate Practice Exam

For a $280,000 house financed at 100%, after how many years of paying off $10,000 annually can PMI be dropped, assuming no appreciation in value?

1. 5

2. 7

3. 10

4. 12

The correct answer is: 7

Paying off $10,000 annually for 7 years will result in a total paid amount of $70,000. This means that the remaining loan balance will be $210,000. This remaining balance constitutes 75% of the original value of the house, which is usually the threshold for PMI to be dropped. Hence, after 7 years of annual payments, PMI can be dropped. Option A is incorrect because paying off $10,000 annually for 5 years only results in a total paid amount of $50,000, which is less than 20% of the original value of the house. Option C is incorrect because paying off $10,000 annually for 10 years results in a total paid amount of $100,000, which is still less than 40% of the original value of the house. Option D is incorrect because paying off $10,000 annually for 12 years results in a total paid amount of $120,000, which is still less than 50% of the original value of the house. It is important to note that this explanation assumes no appreciation in value of the house. If the house does appreciate in value, the remaining loan balance may become