Real Estate Finance and Mortgages
What this domain covers
Real Estate Finance and Mortgages tests how purchases are funded and how lenders secure loans. It covers loan-to-value, affordability, amortisation, mortgage registration, and a mortgagee’s remedies.
Core rules
- A mortgage is security for a debt, not a transfer of ownership. In Jamaica, a mortgage over registered land is registered under the Registration of Titles Act; priority generally follows registration.
- Loan-to-value (LTV) = loan ÷ value or purchase price, whichever is lower. A 90% LTV on a J$15,000,000 purchase gives a J$13,500,000 loan and a J$1,500,000 deposit.
- Lenders test affordability using gross income ratios: housing payment to gross income and total debt to gross income. They also stress-test at a higher rate.
- Monthly payments on an amortising loan are calculated on principal, monthly interest rate, and number of payments. Fixed-rate, variable-rate, and graduated-payment loans carry different risks.
- A mortgagee’s power of sale arises on default, subject to notice and statutory procedure. Other remedies include possession, foreclosure, and appointing a receiver.
- NHT, commercial banks, building societies, and credit unions are major funding sources with different eligibility rules.
Worked example
A J$13,500,000 loan at 8.5% per annum over 20 years has a monthly rate of 0.085 ÷ 12 = 0.007083 and 240 payments. Using the amortisation formula, the payment is about J$117,000 per month. If gross monthly income is J$350,000, the housing ratio is 117,000 ÷ 350,000 = 33.4%, before other debts-so the lender must also check total debt service.
Traps
Confusing approval in principle with a loan offer; ignoring closing costs and mortgage fees; using net rather than gross income; and assuming a variable rate will not change.