How a commercial mortgage payment is calculated
Most commercial real estate loans amortize over a longer schedule than the loan term. The payment is set as if the loan would be repaid over the full amortization, and whatever principal remains when the term ends is due as a balloon payment. Borrowers usually repay the balloon by refinancing or selling the property.
The monthly payment uses the standard amortization formula: payment = loan amount x r / (1 - (1 + r)^-n), where r is the annual rate divided by 12 and n is the amortization in months.
Worked example
A $5,000,000 loan at 7.00% on a 30-year amortization with a 10-year term has a monthly payment of $33,265 and annual debt service of $399,181. After 10 years of payments, the remaining balance due at maturity is $4,290,619. Interest paid over the term totals $3,282,434.
Amortization, term, and interest-only periods
The amortization sets the payment. The term sets when the loan comes due. An interest-only period lowers the early payments because no principal is repaid, which also leaves a larger balance at maturity. Lenders often offer interest-only periods on lower-leverage loans, on transitional business plans, and on construction and bridge financing.
Annual debt service is the number lenders compare to net operating income. Run it through the DSCR calculator to see whether the property covers the payment, or use the loan sizing calculator to find the largest loan the property supports.
What the calculator leaves out
The calculator assumes a fixed rate for the full term. It does not include origination fees, reserves, floating-rate caps, rate resets, prepayment costs, or the effect of a variable index. Capital Partners does not publish rate quotes because pricing depends on the property, sponsor, leverage, structure, and lender.
Rate notes from Capital Partners
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Common questions
What is a balloon payment on a commercial loan?
A balloon payment is the principal still owed when a commercial loan reaches maturity. It exists because the loan term is shorter than the amortization schedule, so the payments never fully repay the loan. Borrowers usually pay it by refinancing or selling the property.
What amortization do commercial mortgages use?
Amortization depends on the lender, property type, and loan program. Permanent loans on stabilized property usually amortize over a longer schedule than bridge and construction loans, which are often interest only. Enter the amortization from your term sheet to see the payment.
How does an interest-only period change the payment?
During an interest-only period the payment covers interest only, so it is lower than an amortizing payment and the balance does not decline. Amortization begins after the period ends, and the balance at maturity is higher than it would be on a fully amortizing loan.
Does this calculator show current commercial mortgage rates?
No. Enter the rate you have been quoted or the rate you want to test. Commercial mortgage pricing depends on the property, sponsor, leverage, loan size, structure, and lender, and Capital Partners reviews the current range with borrowers directly.