Mortgage constant, also called "mortgage capitalization rate" is the capitalization rate for debt. It is usually computed monthly by dividing the monthly payment by the mortgage principal. An annualized mortgage constant can be found by multiplying the monthly constant by 12, or dividing the annual debt service by the mortgage principal.

A mortgage constant is a rate that appraiser

Appraiser

An appraiser , is one who sets a value upon property, real or personal. In England the business of an appraiser is usually combined with that of an auctioneer, while the word itself has a similar meaning to that of "valuer." In the United States, the most common usage relates to real estate...

s determine for use in the band of investment approach. It is also used in conjunction with the debt-coverage ratio that many commercial bank

Commercial bank

After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...

ers use.

The mortgage constant is commonly denoted as Rm

RM

RM may refer to:-People and titles:* Radioman, a former rank of the U.S. Navy* Resident Magistrate* Returned Missionary, a phrase used by Mormons to refer to young men and women who have served as full-time missionaries...

. 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.