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".

Investopedia Says:
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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Percentage ratio between the annual Debt Service and the loan Principal.

The percentage ratio between the annual Debt Service and the loan Principal. The formula is

Ann. Debt serv. = mort. Const.

Loan prin.
Example: A loan of $10,000 at 8% interest for 5 years requires annual payments of $2,505. The mortgage constant is

2,505 = .2505 or 25.05%

10,000

Annual Debt Service for the loan is

††††††††††† 0.2505 " $10,000 = $2,505