Glossary

Mortgage-Equity Analysis (Ellwood Technique)

Also known as: Ellwood Technique, Ellwood Formula

A yield-capitalization method, developed by L.W. Ellwood, that derives an overall capitalization rate from the financing terms available to a typical purchaser and the equity investor's required yield rate, explicitly accounting for loan amortization and the change in property value over a projected holding period.

Unlike the simpler band of investment, which only blends the mortgage constant and equity dividend rate, Ellwood's formula incorporates the equity investor's target yield rate (Ye), the mortgage's amortization through the loan paydown ratio and Ellwood's adjustment factors, and an assumed percentage change in overall property value (delta-o) over the projection period, producing a capitalization rate that reflects both the income stream and the anticipated appreciation or depreciation captured at reversion. Ellwood published pre-computed tables for common combinations of mortgage terms, yield rates, and holding periods that let appraisers look up derived factors rather than solving the underlying present-value equations by hand; modern practice more often reproduces the same mathematics inside a DCF model, which is why some appraisers now describe mortgage-equity analysis as effectively subsumed within discounted cash flow analysis rather than practiced as a freestanding technique. It remains examinable, MAI-designation-level material and a useful analytical cross-check precisely because it makes explicit what a discount-rate assumption in a DCF model is implicitly asserting about financing and appreciation.