Posted in Finance, Accounting and Economics Terms, Total Reads: 374
Definition: Mortgage Constant
Mortgage constant or mortgage capitalization rate refers to the portion of debt that is serviced every year to the total value of the loan. This is only applicable for mortgages that have a fixed interest rate.
If the loan value is $100,000 then the annual mortgage payment would be $9,670. So a loan with 7.5% interest rate would be serviced with an annual interest payment of $7500 and amortized with $9,670 annually i.e. $2170 will go towards principal payment.
In case of commercial or leasable property, the mortgage constant can be used to calculate the highest loan value that could be given to a property in comparison with the income that is likely to be generated by the property.