Mortgage Constant

A rate calculated by dividing the periodic loan payment by the initial loan amount. The Mortgage (or Loan) Constant is often used as a tool to efficiently calculate loan payments and is represented as a percentage. For instance, a mortgage loan with an annual payment of $16,000 and an initial loan balance of $250,000 has a Mortgage Constant of 6.40%. In an interest only loan, this metric would be the same as the interest rate where with an amortizing loan this would be different because there are principal payments included as well. Lenders can use this to compare different loans and how quickly they get back their loan amount through regular payments.