Suppose you have just purchased your first home for $300,000. At the time of purchase you could afford to commit 20% of the purchase price to a down-payment. Suppose over time you paid down the principal of the loan to $220,000 and at that point in time you can no longer make any mortgage payments (i.e., you default on the loan). If the lender were to foreclose on your property and sell it for $190,000, determine the amount of the loan's principal that the lender was unable to recover due to the default.

Question

Quizplus · Accepted Answer

The lender was unable to recover $30,000 of the loan's principal because the loan balance was $220,000 at the time of default, and the property was sold for $190,000. Subtracting these amounts ($220,000 - $190,000) gives the unrecovered amount of $30,000.

Suppose You Have Just Purchased Your First Home for $300,000