Copyright

You borrow $75,000 for 30 years at 11% interest compounded annually. The value of the property is...

Question:

You borrow $75,000 for 30 years at 11% interest compounded annually. The value of the property is $100,000, PGI= $20,000, vacancy rates are 8%, and operating expenses are $81,000. Calculate the mortgage constant.

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.

Answer and Explanation:

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}

Learn more about this topic:

Loading...
Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
8.7K

Related to this Question

Explore our homework questions and answers library