We have changed our privacy policy. In addition, we use cookies on our website for various purposes. By continuing on our website, you consent to our use of cookies. You can learn about our practices by reading our privacy policy.


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 Mortgage?345 Views

00:00

Finance allah shmoop shmoop What is a mortgage Well people

00:07

a mortgage is just dead it's alone but one with

00:10

special tax treatment For most people simply put Any interest

00:15

you pay on a mortgage to buy a home is

00:18

tax deductible Morty morton's inputs down a hundred thousand bucks

00:25

to buy a home that costs four hundred big ones

00:29

his mortgages three hundred grand at five percent interest per

00:33

year So that's fifteen thousand dollars a year he pays

00:36

to rent the money from the bank which he uses

00:39

to buy his dream home with the loop de loop

00:42

waterslide Morty earns one hundred grand a year and pays

00:44

tax on his last fifteen thousand of earnings soas faras

00:48

The irs is concerned since morty can deduct his fifteen

00:52

thousand dollars in interest against his earnings he does not

00:56

in fact earn taxable wages of one hundred grand annually

01:00

Instead he earns taxable wages of eighty five thousand dollars

01:05

a year Essentially with government is doing is sharing in

01:08

some of the cost of renting the money Taub i'm

01:11

ortiz home well why would the u s government be

01:13

so charitable Well because home ownership has been integral part

01:17

of the american dream since the u s of a

01:20

i po'ed in seventeen seventy six easy access to mortgages

01:25

and then home buying can be a hugely beneficial asset

01:29

In the vast majority of cases homes create family stability

01:32

a store of wealth and tax dollars for local schools

01:36

in the form of real estate taxes So don't feel

01:39

bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello

Up Next

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.

Finance: What is a Reverse Mortgage?
6 Views

With a reverse mortgage, payments go in the opposite direction of a normal mortgage, where you pledge your home as an asset, and receive $ each month.

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