Mortgage Constant

See: Mortgage.

You want to buy a $650,000 house. You put $150,000 down and get a 30-year mortgage for the remaining $500,000 at 6% fixed interest rate. Your mortgage payment equals $3,889 for each of the next 360 months.

The mortgage constant lets you know the amount of debt service you pay on an annual basis as a percentage of the total amount you've borrowed. Another way to put it: how much are you paying per year for each dollar that you've borrowed?

So, in your case, you've got a monthly payment of $3,889. Multiply that by 12 and you've got $46,668...that's your annual debt service payment. Divide that by $500,000 (the amount of money you've borrowed). Your mortgage constant equals 0.093336...or 9.3336%.