Mortgage constant , also called “mortgage capitalization rate ” is the capitalization rate for debt. It is usually computed monthly by the principal mortgage payment. An annualized mortgage can be found by multiplying the monthly constant by 12, or dividing the. [1]

A mortgage constant is a rate that appraisers determine for use in the band of investment approach. It is also used in conjunction with the debt-coverage ratio that many commercial bankers use.

The mortgage constant is commonly denoted as Rm. The Rm is higher than the interest rate for an amortizing loan because the Rm includes consideration of the principal as well as the interest. The Rm could be lower than the interest for a negatively amortizing loan.

Formula

{\ Displaystyle LoanConstant = (interest) / (1- (1 / (1+ (i / m)) ^ {n})}}

Where:

  • I = Interest
  • N = Total Number of Months that the loan is repaid
  • M = Number of months in a year

References

  1. Jump up^ http://www.investopedia.com/terms/m/mortgageconstant.asp