Loan Constant

AAA

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.

INVESTOPEDIA EXPLAINS '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. Loan

    The act of giving money, property or other material goods to ...
  3. Paydown Factor

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

    1. The amount borrowed or the amount still owed on a loan, separate ...
  5. Forbearance

    A temporary postponement of mortgage payments.
  6. Mortgage Modification

    A permanent change in a homeowner's home loan terms that makes ...
Related Articles
  1. To Rent Or Buy? The Financial Issues
    Home & Auto

    To Rent Or Buy? The Financial Issues

  2. The Basics Of REIT Taxation
    Taxes

    The Basics Of REIT Taxation

  3. The Benefits Of Mortgage Repayment
    Home & Auto

    The Benefits Of Mortgage Repayment

  4. Score A Cheap Mortgage
    Options & Futures

    Score A Cheap Mortgage

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center