DEBT GUIDE
What Is a Loan Constant?
A loan constant is annual scheduled debt service divided by original loan principal.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
For an amortizing loan, calculate the level payment from rate and amortization, multiply by twelve and divide by principal.
Calculation framework
An interest-only loan constant approximates the interest rate, while amortization makes the constant higher than the coupon.
Underwriting review
Match payment frequency, compounding and rate convention. Fees are normally outside the contractual debt service constant unless specified.
How to use the result
Use the constant to convert a DSCR limit into loan capacity: NOI ÷ minimum DSCR ÷ loan constant.