Certified Residential Appraiser Practice Exam

What does Mortgage Debt Service refer to?

1. Total income generated by a property

2. Annual sum of all mortgage payments

3. The remaining balance on a loan

4. Amount paid in interest only

The correct answer is: Annual sum of all mortgage payments

Mortgage Debt Service specifically refers to the annual sum of all mortgage payments made on a loan. This total encompasses both principal and interest payments, along with any other costs associated with the mortgage that are packaged into the monthly payments. Understanding Mortgage Debt Service is crucial for both lenders and borrowers, as it reflects the actual financial obligation required to service the debt on a property over a year. The significance of knowing the total annual mortgage payments lies in its impact on a borrower’s ability to manage their finances. This total debt service can affect how lenders evaluate loan applications, as they often look closely at the borrower's debt-to-income ratio, which compares the monthly debt obligations to monthly income. In contrast, other options focus on different aspects of mortgage financing. The total income generated by a property refers to rental or operational income, which does not include any payment obligations. The remaining balance on a loan pertains to how much of the principal is still owed, which is separate from the total payments made during the year. Lastly, the amount paid in interest only refers specifically to part of the mortgage payment and does not encompass the principal payment, thus not representing the total debt service correctly.