Mortgage Constant

  

Categories: Mortgage

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%.

Related or Semi-related Video

Finance: What is a Reverse Mortgage?6 Views

00:00

Finance allah shmoop What is a reverse mortgage All right

00:07

people let's start with a normal mortgage You put one

00:09

hundred grand down borrow three hundred grand and are the

00:12

proud new owner of this baby in palo alto california

00:15

You make payments for thirty years at five percent interest

00:18

and then you retire their debt free So that's a

00:21

mortgage but what's a reverse mortgage Like one of these

00:25

egg trump Well kind of at least financially the payments

00:29

go in the opposite direction of a normal mortgage Like

00:32

you're old you just want to live out your remaining

00:35

years with the basic comforts Shower seats stair lift high

00:39

absorption adult diapers You own all of your home No

00:43

mortgage on it You paid it all off The home

00:45

is now worth a million box Nice shoebox There you

00:49

can do a reverse mortgage pledging your home is an

00:53

asset and basically just receiving a payment of l say

00:56

five grand a month from that reverse mortgage and you'll

01:00

get to deduct interest costs as you go Justus if

01:03

it were a normal mortgage well after forty months you

01:07

you know croak in that time period you've taken out

01:09

Forty times five grand or two hundred grand in loans

01:12

plus some interest and you sell your home for a

01:15

cool million Rather your heirs dio So what happens now

01:19

Well they just take the million bucks from the sale

01:21

write a check for two hundred grand and change to

01:24

the bank to pay off the reverse mortgage that you

01:27

had accrued while you were you know wasting away to

01:29

nothing and your heirs end up happy like they miss

01:33

you But you know a free stair lift Who are 00:01:37.997 --> [endTime] you

Up Next

Finance: What is a Mortgage?
345 Views

What is a mortgage? A mortgage is a loan on property. Obviously not many individuals, or companies for that matter, can or want to pay cash for the...

Finance: What is Adjustable-Rate Mortgage (ARM)?
17 Views

What is an Adjustable-Rate Mortgage (ARM)? An adjustable-rate mortgage is a mortgage that has a changing interest rate. Whatever it changes to is b...

Finance: What is Interest Only Mortgage?
17 Views

An interest-only mortgage is a mortgage on which you only pay the rent on money borrowed, rather than on the principal.

Finance: What is a second mortgage?
4 Views

What's a second mortgage? Easy: it comes after a first mortgage. Hit play for more details.

Find other enlightening terms in Shmoop Finance Genius Bar(f)