k =

ADS =

Loan Amount =

Payment Timing = 0

Interest/Year =

Years =

Payment = 12

Compounds/Year = 12

Loan Constant =

k =

Loan constant measures the true cost of borrowing with consideration to the effective interest rate, the payback of interest and the payback of principal. Multiplying the loan constant by the amount to be borrowed gives the payment.

Loan constant can also be used to compare loan alternatives. Investors choose the loan with the lowest loan constant since it achieves the lowest annual debt service and results in the highest cash flow. There are two alternative methods for performing this calculation, both included in this template.

Also known as Mortgage Loan Constant or Mortgage Constant.

Simplified Version

- k: Loan constant is an interest factor that can be used to determine the annual debt service of a loan. Multiply the loan constant by the principal amount of the loan to determine annual debt service.

- ADS: Annual debt service (monthly payments annualized).

- Loan Amount: Current loan amount.

Expanded Version

- Payment Timing: Whether payments are made at the beginning (as in amortizing lease payments) or end of the payment period ( as is common with loans, when interest is earned) for financing.

- Interest/Year: Annual interest rate entered as a percentage.

- Years: Term of the loan in years.

- Payment: How often payments are made, whether Monthly, Yearly or Bi-Weekly.

- Compounds/Year: How often interest compounds, whether Monthly (12 times/year), Canadian (2 times/year) or Annual.

- Loan Constant: Loan constant, expressed as a decimal, in the same terms as Payment.

- k: Loan constant expressed as an annual percentage.

What's the loan constant for a $150,000 loan with monthly payments of $1,000?

- ADS: $12,000 [$1,000/month * 12 months]

- Loan Amount: $150,000

Select "=" on k row. The loan constant is 8%.

What's the annual loan constant for a loan at 9% interest over 30 years? Assume monthly interest compounding and payments.

- Payment Timing: End [loans are generally end of period]

- Interest/Year: 9.0%

- Years: 30

- Payment: Monthly

- Compounds/Year: Monthly

Select "=" on Loan Constant row. The annual loan constant (k) is 9.655%.

k

ADS

Loan Amount

Payment Timing

Interest/Year

Years

Payment

Compounds/Year

Loan Constant

k

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Annual Debt Service

Mortgage Loan Constant

Mortgage Constant