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
Finance allah shmoop What is a reverse mortgage All right
people let's start with a normal mortgage You put one
hundred grand down borrow three hundred grand and are the
proud new owner of this baby in palo alto california
You make payments for thirty years at five percent interest
and then you retire their debt free So that's a
mortgage but what's a reverse mortgage Like one of these
egg trump Well kind of at least financially the payments
go in the opposite direction of a normal mortgage Like
you're old you just want to live out your remaining
years with the basic comforts Shower seats stair lift high
absorption adult diapers You own all of your home No
mortgage on it You paid it all off The home
is now worth a million box Nice shoebox There you
can do a reverse mortgage pledging your home is an
asset and basically just receiving a payment of l say
five grand a month from that reverse mortgage and you'll
get to deduct interest costs as you go Justus if
it were a normal mortgage well after forty months you
you know croak in that time period you've taken out
Forty times five grand or two hundred grand in loans
plus some interest and you sell your home for a
cool million Rather your heirs dio So what happens now
Well they just take the million bucks from the sale
write a check for two hundred grand and change to
the bank to pay off the reverse mortgage that you
had accrued while you were you know wasting away to
nothing and your heirs end up happy like they miss
you But you know a free stair lift Who are 00:01:37.997 --> [endTime] you
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