Loan Constant (Mortgage Constant)
Computes the loan constant, also called the mortgage constant: the annual debt service divided by the original loan amount, as a percentage. It shows directly what fraction of the principal you pay per year, combining interest and amortization. In real estate, comparing the loan constant with a property's cap rate immediately reveals whether the financing produces positive or negative leverage. Enter the annual debt service and the loan amount.
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Loan Constant (Mortgage Constant)
Computes the loan constant, also called the mortgage constant: the annual debt service divided by the original loan amount, as a percentage. It shows directly what fraction of the principal you pay per year, combining interest and amortization. In real estate, comparing the loan constant with a property's cap rate immediately reveals whether the financing produces positive or negative leverage. Enter the annual debt service and the loan amount.
The shortcut to knowing if financing helps
In real estate there's a question that decides many deals: does taking financing raise or lower your return? The loan constant is the missing piece to answer it. It expresses, in a single percentage, how much of the financed amount you lay out per year, combining interest and amortization.
The magic appears in the comparison with the property's cap rate. If the property yields a cap rate higher than the loan constant, the debt works in your favor: each financed dollar earns more than it costs, and that's positive leverage. If lower, the financing erodes the return. That direct comparison is what makes the constant so practical.
Enter the annual debt service (the sum of the year's payments) and the original loan amount. The tool returns the constant as a percentage. Remember it depends on the interest rate and amortization term embedded in the debt service, so recompute it whenever you renegotiate the financing.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.