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Define Mortgage Constant Ratio (MCR) in Real Estate
Mortgage Constant Ratio (MCR):
Mortgage constant ratio is a number that helps you figure out how much money you have to pay each month for your home loan. It includes both the amount you borrowed and the interest you have to pay on that loan. To find this number, divide the yearly loan payment by the total amount you borrowed.
Formula:
MCR-formula.png
Example:
Let's say you borrowed $200,000 for your house at a 4% interest rate for a 30-year loan. You'd have to pay about $11,432 each year (Annual Debt Service), or $953.28 each month. To find the mortgage constant ratio, you'd divide $11,432 by $200,000, which is about 0.05716. So, your mortgage constant ratio is 0.05716, meaning you'd pay about 5.716% of the loan amount each year.
"A Deep Dive for Real Estate Agents and Appraisers"
"Mortgage constant" and "mortgage constant ratio" are related terms used in real estate finance, but they refer to slightly different things.
Mortgage constant is a fixed number used to calculate the total amount of money required to cover both the principal and interest payments on a mortgage loan over a specific period of time, typically expressed as an annual percentage rate (APR). It represents the total amount of payments required to pay off a mortgage loan, including both the principal and interest, divided by the original loan amount.
Mortgage constant ratio, on the other hand, is the ratio of the total annual debt service (i.e., the total amount of money required to make the regular monthly mortgage payments) to the mortgage loan amount. It's also expressed as an annual percentage rate or as a decimal and is used to determine the affordability of a mortgage loan.
In essence, the mortgage constant is a fixed number that's used to calculate the total cost of a mortgage loan, while the mortgage constant ratio is a ratio that's used to compare the total annual debt service to the mortgage loan amount.
So, while they both deal with the cost of a mortgage loan, the mortgage constant is a more absolute number, while the mortgage constant ratio is a relative comparison between the total annual debt service and the mortgage loan amount.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In a land where homes are bought and sold,
A mortgage constant helps stories unfold.
It's a magic number you need to know,
To figure out your monthly cash flow.
Borrow money, but remember the rate,
Add some years, and don't be late.
Divide the payments yearly, and then,
By the loan amount, we'll find our gem.
In our example, a tale we shall weave,
$200,000 borrowed, you'll soon believe.
At 4% interest, for 30 years with zest,
$11,432 yearly, we've made our quest.
Divide by the loan, and what do we see?
A mortgage constant, 0.05716 it'll be.
So each year, you'll pay 5.716% with cheer,
For your dream home to finally appear.