About the Loan Constant Calculator
The loan constant, also called the mortgage constant or debt constant, is the total annual debt service on a loan — principal and interest — expressed as a percentage of the original loan amount. A $1,000,000 loan that costs $81,025 a year to service has a loan constant of 8.10%. Because it combines the interest rate and the amortization period into one number, it is the quickest way to compare loan offers and to size commercial real estate debt.
Enter the loan amount, interest rate, amortization period and payment frequency (or choose interest-only) to get the constant, the payment and the annual debt service. Add the property’s net operating income and a lender’s minimum debt service coverage ratio (DSCR) to see your coverage and the largest loan the income supports, and enter the property cap rate to check whether leverage is positive or negative.
It is useful for commercial and multifamily investors, mortgage brokers, underwriters and CRE students. The amortization period is what sets the constant — a loan with a 10-year term and 25-year amortization uses the 25-year figure until the balloon.
With the default inputs, the loan constant is 8.102%. Change any value above to recalculate instantly.
How to use the loan constant calculator
- 1Enter the loan amount and interest rate.
- 2Choose amortizing or interest-only, then the amortization period and payment frequency.
- 3Read the loan constant and annual debt service.
- 4Add NOI and the lender’s minimum DSCR to see coverage and the maximum loan.
- 5Enter the cap rate to check whether the loan creates positive or negative leverage.
Formula and method
For an amortizing loan the constant is the level periodic payment on one dollar of principal multiplied by the number of payments per year, where i is the annual interest rate, m the payments per year and n the amortization period in years. Because part of every payment repays principal, the constant is always higher than the interest rate; for an interest-only loan it equals the rate.
Multiplying the constant by any loan amount gives annual debt service, so dividing NOI by debt service gives the debt service coverage ratio, and dividing NOI by the minimum DSCR times the constant gives the maximum loan. When the cap rate (unlevered yield) is higher than the loan constant, each borrowed dollar earns more than it costs to service, which is positive leverage.
- K
- Loan constant (annual debt service per $1 of loan)
- i
- Annual interest rate
- m
- Payments per year
- n
- Amortization period in years
Worked examples
$1M at 6.5%, 25-year amortization
The monthly payment on $1,000,000 at 6.5% over 25 years is $6,752.07, so annual debt service is $81,025 and the loan constant is 8.10%. $95,000 of NOI covers that 1.17×, below a 1.25× minimum, which caps the loan at about $938,000. A 7% cap rate is below the 8.10% constant, so leverage is negative.
$2.5M at 7.25%, 30-year amortization
A 30-year amortization at 7.25% gives a constant of 8.19%, so $2.5M costs $204,653 a year. NOI of $230,000 covers that only 1.12×; at a 1.30× minimum the lender would cap the loan at about $2.16M.
Interest-only at 5%
With no principal repayment the constant equals the 5% interest rate: $50,000 a year on $1M, or $4,166.67 a month. NOI of $95,000 covers that 1.9×, supporting up to $1.52M at 1.25×, and a 7% cap rate means positive leverage.
Annual payments instead of monthly
Paying once a year instead of monthly raises the constant slightly to 8.20%, because principal is repaid later and more interest accrues between payments.
Frequently asked questions
What is a loan constant?+
A loan constant is the annual debt service on a loan divided by the loan amount. It shows what percentage of the original principal you pay each year in principal and interest combined, and it depends only on the interest rate, amortization period and payment frequency.
How do you calculate the mortgage constant?+
Calculate the periodic payment on the loan, multiply by the number of payments per year to get annual debt service, then divide by the loan amount. For example, $6,752.07 × 12 ÷ $1,000,000 = 8.10% for a 6.5% loan amortized over 25 years.
Why is the loan constant higher than the interest rate?+
Each payment on an amortizing loan includes principal as well as interest. The constant captures both, so it is always above the interest rate. A longer amortization lowers the principal portion and moves the constant closer to the rate.
What does it mean if the cap rate is higher than the loan constant?+
It means positive leverage: the property’s unlevered yield exceeds the annual cost of each borrowed dollar, so adding debt increases the cash-on-cash return to equity. If the constant is higher than the cap rate, debt drags the return down.
How is the loan constant used to size a loan?+
Lenders divide NOI by their minimum DSCR to find the maximum annual debt service, then divide that by the loan constant. With $95,000 of NOI, a 1.25× DSCR and an 8.10% constant, the maximum loan is about $938,000.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.