Mortgage Constant

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DEFINITION of 'Mortgage Constant'

A ratio between the annual amount of debt servicing to the total value of the loan. The mortgage constant is only applicable to mortgages that pay a fixed rate.

Also known as the "mortgage capitalization rate".

BREAKING DOWN 'Mortgage Constant'

This constant also can be used to calculate the highest loan value that could be received on a property given the income generated by that property, if it is a commercial or rental property. For example, if the total amount paid annually on a $200,000 loan is $5,000, the mortgage constant would be 5,000 / 200,000 = .025, or 2.5%.

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