Commercial Real Estate Loan & DSCR Calculator
Estimate your monthly payments, Debt Service Coverage Ratio (DSCR), and potential balloon payment for commercial property investments.
Loan Summary Results
Understanding Commercial Real Estate Financing
Commercial Real Estate (CRE) loans differ significantly from residential mortgages. While residential loans are primarily based on the borrower's personal income, CRE loans focus heavily on the income-generating potential of the property itself. This calculator helps investors evaluate the viability of a deal using industry-standard metrics.
Key Commercial Loan Terms
- Amortization vs. Loan Term: In commercial lending, it is common to have a 25-year amortization period (which determines the monthly payment amount) but a much shorter "Loan Term" (e.g., 5, 7, or 10 years). At the end of the term, the remaining balance is due as a Balloon Payment.
- DSCR (Debt Service Coverage Ratio): This is the primary metric lenders use to assess risk. It is calculated by dividing the Net Operating Income (NOI) by the annual debt service. Most commercial lenders require a DSCR of 1.20x to 1.35x.
- LTV (Loan-to-Value): Commercial loans typically require higher down payments, usually resulting in an LTV between 65% and 80%.
Real-World Example
Imagine you are purchasing a small office building for $1,000,000. You put 25% down ($250,000), leaving a loan amount of $750,000. With a 6.5% interest rate and a 25-year amortization, your monthly payment would be roughly $5,064.
If the building generates $150,000 in gross rent and has $45,000 in expenses (taxes, insurance, maintenance), your NOI is $105,000. Your annual debt service is $60,768 ($5,064 x 12). Your DSCR would be 1.73 ($105,000 / $60,768), which is considered a very strong and bankable ratio.
Why the Balloon Payment Matters
Because the loan term (e.g., 10 years) is shorter than the amortization (25 years), you will not pay off the loan by the end of the term. You must be prepared to either refinance the property, sell the asset, or pay the remaining principal in cash when the term expires.