The mortgage constant represents:
Correct Answer
C) Annual debt service divided by the original loan amount
Why this is correct: The mortgage constant (R_m) is the ratio of the annual debt service (principal and interest payments) to the original loan principal. It represents the annual payment rate on the loan. Why the other choices are wrong: "The lender's required equity contribution" describes the down payment, not a rate. "The loan's stated interest rate alone" ignores the principal repayment component included in the constant. "The property's overall capitalization rate at purchase" is a property-level metric (NOI/Value), not a loan metric. Exam tip: Mortgage constant = Annual Debt Service / Original Loan Amount. It is always higher than the interest rate for an amortizing loan.
Why This Is the Correct Answer
Why this is correct: The mortgage constant (R_m) is the ratio of the annual debt service (principal and interest payments) to the original loan principal. It represents the annual payment rate on the loan. Why the other choices are wrong: "The lender's required equity contribution" describes the down payment, not a rate. "The loan's stated interest rate alone" ignores the principal repayment component included in the constant. "The property's overall capitalization rate at purchase" is a property-level metric (NOI/Value), not a loan metric. Exam tip: Mortgage constant = Annual Debt Service / Original Loan Amount. It is always higher than the interest rate for an amortizing loan.
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