Certified Pennsylvania Evaluator Practice Exam

What does a mortgage constant help to determine?

1. The principal amount borrowed

2. The annual payment amount

3. The effective gross income

4. The market value of a property

The correct answer is: The annual payment amount

A mortgage constant is a useful financial metric that helps determine the annual payment amount for a loan based on the principal borrowed and the interest rate. It is expressed as a percentage and is calculated by dividing the total annual debt service (the total monthly payment multiplied by 12) by the original loan amount. This constant remains consistent regardless of varying property values or incomes, making it a reliable tool for comparing the cost of borrowing among different mortgages. When using the mortgage constant, one can easily find the annual payment amount by multiplying the mortgage constant by the principal of the mortgage. This illustrates how the remaining options—such as the principal amount borrowed, effective gross income, and market value of a property—are not directly determined by the mortgage constant itself. Instead, they are separate financial metrics that may influence the mortgage process but do not fall under the scope of what a mortgage constant reveals.