Commercial Loan Calculator
How a Commercial Loan Calculator Works
Commercial real estate loans differ significantly from residential mortgages. While a home loan is typically amortized over 30 years with the loan lasting the full duration, commercial loans often feature shorter loan terms (5, 7, or 10 years) with longer amortization periods (20 or 25 years). This creates a "Balloon Payment" at the end of the term.
This calculator helps investors and business owners determine their monthly cash flow requirements and the final lump sum due at the end of the mortgage term. Understanding these metrics is vital for calculating the Debt Service Coverage Ratio (DSCR), a key metric lenders use to evaluate commercial deals.
Suppose you are buying a warehouse for $1,200,000. You put down 25% ($300,000). Your bank offers a 6.25% interest rate with a 20-year amortization but a 7-year balloon term.
- Loan Amount: $900,000
- Monthly Payment: $6,577.63
- Balloon Payment after 7 years: $725,482.11
Key Commercial Loan Terms
Amortization Period: The number of years used to calculate the monthly payment. A longer period reduces the monthly payment but increases the total interest paid.
Loan Term: The actual duration of the loan. In commercial lending, the term is usually shorter than the amortization, meaning the borrower must refinance or pay off the balance (Balloon Payment) at the end of the term.
LTV (Loan to Value): Commercial lenders typically require a lower LTV than residential lenders, often between 65% and 80%.
Understanding the Balloon Payment
The balloon payment is the remaining principal balance due at the end of your loan term. Because your monthly payments were calculated based on a longer amortization (e.g., 25 years) but the loan ends sooner (e.g., 10 years), the principal has not been fully paid off. Borrowers typically handle this by selling the property or refinancing into a new loan.