Mortgage Constant Table by Rate and Term

The formula behind every cell

constant = 12 × i / (1 − (1 + i)^−n)

Here i is the monthly rate, the annual rate divided by 12, and n is the number of monthly payments: 360 on a 30-year loan. Switch the table to annual payments and 12 becomes 1. The definition, and how the number feeds the band-of-investment method, are on the mortgage constant page.

Two things matter before you use it. On an amortizing loan the constant always sits above the interest rate, because principal is part of every payment. And loan size never changes it, so the same rate and term give the same constant on $100,000 and on $1,000,000. An interest-only loan has a constant equal to its rate: at 6.5% the constant is 6.5%. Everything above that is the price of paying the loan down.

Read down a column for the rate effect: four points of extra interest, from 4% to 8%, adds about three points to a 30-year constant (5.73% to 8.81%). Read across a row for the term effect, which is larger than most buyers expect. At 6%, going from 30 years to 15 years moves the constant from 7.19% to 10.13% with no change in the rate.

Reading the table against a cap rate: the $500,000 example

Take the standard example on this site. A $500,000 house rents for $4,000 a month with 5% vacancy, $6,000 of taxes, $2,500 of insurance, and 18% of collected income for maintenance, reserves and management. That leaves NOI of $28,892 and a cap rate of 5.78%, the default in the table above. Buy it with 25% down and you have a $375,000 loan against $125,000 of cash.

At 5% over 30 years the constant is 6.44%, so debt service is $24,158 a year. NOI covers it with $4,734 left over, and the debt service coverage ratio is 1.20. The loan clears, but the 5.78% cap rate is below the constant, so the borrowed money costs more than it earns and the return on the $125,000 down payment works out near 3.8%. That is negative leverage.

At 7.25% over 30 years the constant is 8.19%. Debt service becomes $30,704, more than the $28,892 of NOI, so cash flow is negative $1,812 and DSCR falls to 0.94. Most lenders want 1.20 or better, so that version of the deal does not get financed at 25% down.

Where the constant and the cap rate cross

The crossover is the interest rate where the constant equals the cap rate. Below it, borrowing adds to your return; above it, borrowing subtracts. For the 5.78% example on a 30-year loan it sits a little above 4%: the 4% constant is 5.73%, just under the cap rate, and at 4.5% it is already 6.08%.

Price is the other lever. Holding NOI at $28,892, clearing an 8.19% constant means paying about $352,800 rather than $500,000. Rent growth moves the same line, slowly, which is one reason buyers accept thin spreads. More on that in the guide on cap rates and interest rates.

One caution on the term columns. A 15-year loan looks terrible on this test, because its constant runs two to three points above a 30-year loan at the same rate. The extra is principal, not cost: it leaves your checking account and lands in your equity. The crossover test measures cash flow, not whether the purchase builds wealth. For the income side, put your price, rent and expenses into the cap rate calculator and compare its answer with the constant for your loan.