Mortgage Constant


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%.

  1. Interest

    The charge for the privilege of borrowing money, typically expressed ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  4. Conventional Mortgage

    A type of mortgage in which the underlying terms and conditions ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Debt Service

    The cash that is required for a particular time period to cover ...
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