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. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center