Mortgage Constant

The mortgage constant (also called the loan constant) is the annual debt service expressed as a percentage of the total loan amount. It represents the true annual cost of the loan including both principal and interest. For example, a $1,000,000 loan with annual debt service of $75,000 has a mortgage constant of 7.5%. This metric is critical for NNN investors because it determines whether leverage is positive or negative. Positive leverage occurs when the cap rate exceeds the mortgage constant — meaning the property generates more income than the cost of debt. Negative leverage occurs when the mortgage constant exceeds the cap rate, meaning leverage actually reduces returns. At a 6.5% mortgage rate with 25-year amortization, the mortgage constant is approximately 7.8-8.0%, meaning NNN cap rates must exceed this threshold for positive leverage.