## Mortgage Constant:

Mortgage constant is a term that describes the ratio of annual debt service to the amount of borrowed. Therefore, this ratio provides a simple description of how much cash is needed to service the amount of debt initiated.

We can use the following formula to compute mortgage constant:

• {eq}\dfrac{i}{1 - (1 + i)^{-n}} {/eq}

where {eq}i{/eq} is the annual interest rate, and {eq}n{/eq} is the number of annual payments.

In this question, the annual interest rate is 11%, and there are 30 annual payments. Applying the formula, the mortgage constant is:

• {eq}\dfrac{11\%}{ 1 - (1 + 11\%){-30}} = 11.50\% {/eq}