Q: Why do you need to use a debt service constant?
A: The debt constant gives us great precision in identifying annual debt service for any combination of interest rates, amortization periods, and payment frequency. It is very easy to use.
Shockproof! Training has developed an Excel worksheet designed to calculate the unique debt service constant associated with any combination of loan terms. We’ll be glad to send the worksheet to you if you wish; please send your email request to firstname.lastname@example.org and we’ll get it to you.
To use the worksheet, simply enter the interest rate, the debt amortization period, and the payment frequency, e.g., annually, semi-annually, quarterly, or monthly. The Excel function will produce the debt constant for this unique combination of interest rate, amortization period, and payment frequency. Multiply the debt constant by the loan amount to arrive at the annual debt service amount.
When the annual debt service has been determined in this way, simply divide the annual debt service by the number of payments that you’ve specified in your input. Divide by 12 for monthly debt service payments, divide by 4 for quarterly payments, and divide by 2 for semiannual payments. Use the value produced by the worksheet – prior to any division – for annual payment frequency.