Appraisers' Free Forum

Please explain how you derive the number that is the "mortgage coefficient".
I know it is a multiplier, but do not know how you derive the number?
Not urgent, just trying to understand this for the sake of understanding.
I am not performing an assignment, nor do I plan to, as this is above and beyond me.
Just doing some reading, ran across this, and cannot figure it out.
I have googled and searched the net, but still need some explaination from someone that utilizes and understands
the "mortgage coefficient".

Thanks in advance for your time in explaining this.

Where did you run across this term??? I've not heard it before...

Could you be meaning a mortgage constant?

TB

Where I am, we have such good and plentiful market data that developing a cap rate is easy. However, I have used that method as a check and balance to support a weak market derived cap rate. Other than that, you wouldn't use it much unless you were a big bank Chief Reviewer... or just trying to learn it enough to pass a test. I'm not really smart enough to explain it, I just understand the concept and use the spread sheets that I was taught to use.

Tina wrote:Where did you run across this term??? I've not heard it before...

Could you be meaning a mortgage constant?

TB

EXAMPLE

% of equity x interest rate=
% of mortgage x mortgage coefficient-15 years @ 8 % (interest rate)=

As I read this I understand it to indicate an overall cap rate when the two results are added together.
I am wondering how you determine the mortgage coefficient.

Do you mean the band of investment technique? Which is

LTV X Rm(Mortgage Constant) = XYZ
Equity x Re(Equity yield/dividend) = ABC

Overall Rate = XYZ+ABC

Because your above formula I have never seen before, and I just took my MAI comp exam and they had every possible formula on there.

bkirksey wrote:Do you mean the band of investment technique? Which is

LTV X Rm(Mortgage Constant) = XYZ
Equity x Re(Equity yield/dividend) = ABC

Overall Rate = XYZ+ABC

Because your above formula I have never seen before, and I just took my MAI comp exam and they had every possible formula on there.

I think that your formula is what I was looking for, but I have seen several appraisals where the term "mortgage coefficient" was inserted, where you have the Re(Equity yield/dividend) and was unable to find anything other than a definition stating it was a multiplier utilized in the Ellwood Formula.

Thanks for your post.

Bill,
The term you're looking for is "mortgage constant", not "coefficient," although I wouldn't go so far as to say the latter is never used. One of the goldarnedest most confusticating things about learning income cap is the plethora of terms that mean the same thing.

The mortgage constant is the sum of the return ON capital and the return OF capital. It is calculated using the PMT function on the 12C (or the PMT function in Excel, for that matter.) Just figure the monthly payment on $1 at the prescribed interest rate and term, and multiply by 12 to get the annual mortgage constant. That is the figure that you insert for Rm in the formula Ro=Rm+Re.

Remember that those R's on the right side of the equation can be read "Return to the mortgage" and "Return to the equity"; both are percentages. The return to the mortgage is the TOTAL return, i.e., return OF mortgage money as well as return ON mortgage money.

Jim is right on with what I think is going on. One constant (no pun intended) in appraising is that the words will change, if not their meaning. maybe its a planned obsolescence thing to keep us going to classes. The only part I think he missed is that in the example posted by Bill the objective is to find the coefficient (constant) for a seasoned loan for its 16th year.

Thanks for this Bill. I think most of us had long ago lost track of coefficients, but not constants.

Thanks for replies and also the PM from Edd.

It put me on the right track.

I do not use this formula in my appraisal practice, as I am not qualified nor competent to do so, just saw something I felt was worthy of my time to try and discover more about .

Thanks again.

mortgage coefficient (C). A multiplier in the Ellwood formula to compute a capitalization rate. The mortgage coefficient is a function of the terms of the mortgage loan, the projected ownership period, and the equity yield rate.