The quick read: A loan constant is one year of principal and interest divided by the loan amount. Lenders quote it because it converts a property's net operating income into a maximum loan: divide NOI by the required coverage ratio, then divide by the constant. With an illustrative 7.00% rate, $500,000 of NOI and a 1.25x minimum, an interest-only constant of 7.00% supports about $5.71 million, while a 30-year amortizing constant of 7.98% supports about $5.01 million. Same rate, roughly $700,000 less loan. That gap is why the amortization schedule, not only the coupon, decides how much you can borrow.
What is a loan constant?
A loan constant is the annual debt service on a loan, principal and interest together, expressed as a percentage of the original loan amount, so it tells you what each borrowed dollar costs in cash every year. It is also called the mortgage constant. On a 30/360 interest-only loan, the constant equals the rate.
Wikipedia's entry on the mortgage constant defines it as "the ratio of the annual debt service on a mortgage loan to the original loan principal." The interest rate measures only the cost of borrowing; the constant adds the principal you repay each year, so on any amortizing loan it sits above the rate.
Loan constant: annual principal and interest divided by the original loan amount
Interest rate: annual interest divided by the outstanding balance
Annual debt service: the monthly payment multiplied by twelve
It is called a constant because a fixed-rate, fully amortizing loan has a level payment. The split between interest and principal shifts every month, but the annual total divided by the original loan does not change for the life of the loan. That stability is what makes it useful for sizing.
The constant is also the number to compare with a property's cap rate. When the constant exceeds the cap rate, each borrowed dollar costs more in debt service than it earns in income, which is the leverage question covered in our negative leverage explainer.
How do you calculate a loan constant?
You calculate a loan constant by finding the level monthly payment for the rate and amortization period, multiplying it by twelve, and dividing by the loan amount, which collapses into one formula that needs only the rate and the number of monthly payments. The loan size drops out of the math entirely.
Annual loan constant = 12 × (r/12) ÷ (1 − (1 + r/12)^−n), where r is the annual interest rate and n is the number of monthly payments in the amortization period.
Worked example, illustrative and not a quote: at 7.00% over a 30-year amortization, r/12 is 0.0058333 and n is 360. The monthly payment on $1,000,000 is about $6,653, or $79,836 a year, so the constant is 7.98%. The same rate on a 25-year schedule gives 8.48%, and on a 20-year schedule 9.30%.
You can check the formula against a published case. Wikipedia's mortgage constant entry works a 30-year loan at 5.5% and arrives at about 0.0681, a 6.81% constant, which is what the formula above returns.
The 7.00% rate in this article is a round number chosen for the arithmetic. A real fixed-rate quote is built from an index plus the lender's spread; for reference, the 10-year Treasury par yield was 4.95% on November 3, 2026, according to the U.S. Treasury's daily par yield curve.
How does the loan constant set your maximum loan?
The loan constant sets your maximum loan because a lender's coverage test caps annual debt service at NOI divided by the required ratio, and dividing that cap by the constant turns it into a loan amount: maximum loan equals NOI, divided by the DSCR, divided by the constant.
Maximum loan = NOI ÷ DSCR ÷ loan constant
Illustrative example for this section: a property with $500,000 of NOI and a lender minimum of 1.25x can carry $400,000 of annual debt service. The rate is 7.00% in every column; only the payment structure changes.
Loan constant and maximum loan at 7.00%, $500,000 NOI and 1.25x DSCR (illustrative; our arithmetic):
| Measure | Interest-only, 30/360 | Interest-only, actual/360 | 30-year amortization | 25-year amortization | 20-year amortization |
|---|---|---|---|---|---|
| Measure Annual constant | Interest-only, 30/360 7.00% | Interest-only, actual/360 7.10% | 30-year amortization 7.98% | 25-year amortization 8.48% | 20-year amortization 9.30% |
| Measure Annual debt service per $1M | Interest-only, 30/360 $70,000 | Interest-only, actual/360 $70,972 | 30-year amortization $79,836 | 25-year amortization $84,814 | 20-year amortization $93,036 |
| Measure Max loan at $500,000 NOI, 1.25x | Interest-only, 30/360 $5.71M | Interest-only, actual/360 $5.64M | 30-year amortization $5.01M | 25-year amortization $4.72M | 20-year amortization $4.30M |
| Measure Change versus 30-year amortization | Interest-only, 30/360 +$704,000 | Interest-only, actual/360 +$626,000 | 30-year amortization Baseline | 25-year amortization −$294,000 | 20-year amortization −$711,000 |
The spread from top to bottom is about $1.41 million of proceeds on one property at one rate. A borrower who negotiates only the coupon and ignores the amortization is negotiating the smaller lever when proceeds are the constraint.
Coverage minimums vary by lender and program. Freddie Mac's conventional fixed-rate term sheet, dated 4/26, sets a 30-year maximum amortization and a 1.25x minimum amortizing DCR on its multifamily fixed-rate loans. Run your own NOI through the loan sizing calculator, and see the DSCR glossary entry for how the coverage ratio itself is measured.
Why are interest-only loans sized on an amortizing constant?
Some lenders, Freddie Mac on its conventional fixed-rate loans among them, size an interest-only loan on an amortizing constant, because they test coverage against a payment that retires principal rather than the lower interest-only payment. The interest-only period then adds cash flow without adding loan amount. Ask which constant a lender sizes on.
Freddie Mac's fixed-rate term sheet says it directly: "The DCR calculated for the partial-term interest-only and full-term interest-only period uses an amortizing payment." Its table applies the same 1.25x minimum amortizing DCR to full-term interest-only loans as to amortizing ones.
Illustrative example: sized on the 30-year constant, the property above supports $5.01 million. If that loan is interest-only at 7.00%, the actual payment is about $350,719 a year, coverage during the interest-only period is about 1.43x, and the borrower keeps about $49,281 a year that a fully amortizing payment would have consumed.
The practical consequence is that interest-only is a cash-flow feature, not a proceeds feature, when the lender sizes this way. A quote sized on the interest-only constant would support about $5.71 million on the same NOI. Before you compare two interest-only quotes, confirm which constant each lender used to size the loan.
How does actual/360 interest change the constant?
Actual/360 interest raises the constant above the quoted rate because the lender charges 365 days of interest at a rate divided by 360, so in the illustrative example an interest-only loan quoted at 7.00% carries a constant of about 7.10%, and the maximum loan at the same coverage falls by roughly $78,000.
The adjustment for an interest-only loan is the rate multiplied by 365/360: 7.00% × 365 ÷ 360 is 7.097%. On $1,000,000 that is about $70,972 a year instead of $70,000. Freddie Mac's fixed-rate term sheet lists actual/360 as standard, with 30/360 available.
For an amortizing loan under actual/360, the effect depends on how each lender builds its payment schedule, so ask for the schedule in writing rather than assuming the 30/360 constant. Our actual/360 versus 30/360 comparison walks through the day-count math in detail.
How do you get lenders competing to size your loan?
You get lenders competing to size your loan by putting the same NOI, coverage target and amortization request in front of several lenders at once, because each one picks its own constant, coverage minimum and day-count, and those three choices can move proceeds by hundreds of thousands of dollars on one property.
There are two ways to run that comparison, and the brokerage route comes first because it puts several lenders against one file.
- Brokerage route (YieldStack). YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors. Its software compares your deal against 20,000+ loan programs and typically surfaces 5–8 matches; its brokers then structure the request, push for the amortization and sizing basis that fit your NOI, negotiate on your side and carry the deal toward closing. It is a 5-minute submit, with a median first offer in under an hour, from an institutional lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
- Direct route. Ask one lender for its sizing. You get that lender's constant, coverage minimum and day-count, and no second sizing to compare them with.
Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Submit your deal to see how competing lenders size it
The bottom line
The loan constant is the number that converts NOI into loan proceeds, which is why lenders quote it alongside the rate. At the same 7.00% coupon, moving from interest-only sizing to a 20-year amortizing constant cuts the illustrative maximum loan from $5.71 million to $4.30 million. Compare quotes on the constant, the coverage minimum and the day-count, not the rate alone.