Definition: The mortgage-to-rent (MTR) calculation is a financial tool used by lenders or real estate agents to estimate how much money one can borrow to purchase a home.
In this context, "mortgage" refers to the debt incurred by homeowners to finance their purchase and maintenance of a home. The term "rent" usually means that the homeowner pays money to live in the house, not mortgage payments themselves.
A MTR calculator is an online tool or app used by lenders to compare the total amount of money available for a loan based on both the home's value and the monthly rent expenses. This information helps borrowers determine if they can afford to borrow enough to finance their purchase while still being able to pay their mortgage.
The formula for calculating MTR is as follows:
1.
Home Value
: The estimated value of the property.
2.
Rent
: The monthly amount that someone (the "renter") pays in rent to live in the home.
3.
Loan Amount
: The maximum loan amount that can be provided by a lender without having to pay more than what is owed on the mortgage.
For example, if a home with an estimated value of $500,000 and a monthly rent of $2,000 is being rented out for $1,000, the MTR calculation would be:
1. Home Value (500,000): $482,946
2. Rent (2,000): $3,972.16
3. Loan Amount (1,000): $500,000
It's important to note that MTR calculators are only as accurate as the information provided by a lender or app developer. It's always best to consult with a financial advisor for personalized advice based on your specific circumstances.
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