Loan Constant

DEFINITION of 'Loan Constant'

An interest factor used to calculate the debt service of a loan. The loan constant, when multiplied by the original loan principal, gives the dollar amount of the periodic payment. The loan constant can be used to compare the true cost of borrowing. Given the choice of two loans, a borrower will generally opt for the one with the lower loan constant, since it will have the lower debt service requirement.

BREAKING DOWN 'Loan Constant'

As a simple example, a loan constant of 8% on a loan of $150,000 would imply a debt service requirement of $12,000 annually.

Loan constant tables were widely used in the real estate industry before the advent of financial calculators, since they made it relatively easy to calculate monthly mortgage payments.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  3. Paydown Factor

    The portion of cash subtracted each month from the principal ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Balloon Payment

    An oversized payment due at the end of a mortgage, commercial ...
  6. Backlog

    A build-up of work that needs to be taken care of. The term "backlog" ...
Related Articles
  1. Home & Auto

    To Rent Or Buy? The Financial Issues

    Thinking of buying a home? We look at the initial and ongoing costs, as well as the so-called benefits.
  2. Taxes

    The Basics Of REIT Taxation

    The unique tax advantages offered by these investments can translate into superior yields.
  3. Home & Auto

    The Benefits Of Mortgage Repayment

    Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
  4. Options & Futures

    Score A Cheap Mortgage

    Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible.
  5. Options & Futures

    Conquering The Terms Of Your Mortgage

    Buyers with big down payments should get the best mortgage terms. Unfortunately, the equation isn't that simple.
  6. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  7. Bonds & Fixed Income

    The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  8. Credit & Loans

    What is an Alt-A Mortgage?

    Called "liar loans" for their low documentation requirements, Alt-A mortgages were hot until the subprime crisis. Now Wall Street wants to bring them back.
  9. Home & Auto

    Rent-To-Own Homes: How The Process Works

    A rent-to-own agreement can benefit homebuyers with bad credit or insufficient funds for a down payment. Here’s how one works.
  10. Home & Auto

    7 Must-Have Real Estate Contract Conditions

    Buying a home can bury you in paperwork. But it’s worth your time to make sure your contract contains these seven important conditions.
RELATED FAQS
  1. Do FHA loans require escrow accounts?

    Federal Housing Administration (FHA) loans require escrow accounts for property taxes, homeowners insurance and mortgage ... Read Full Answer >>
  2. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
  3. Can FHA loans be refinanced?

    Federal Housing Administration (FHA) loans can be refinanced in several ways. According to the U.S. Department of Housing ... Read Full Answer >>
  4. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  5. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  6. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center