Commercial Real Estate Loan Calculator
Analyze DSCR, LTV, and Balloon Payments for Income-Producing Properties
Loan Parameters
Results Overview
Understanding Commercial Real Estate Loans
Commercial real estate (CRE) financing differs significantly from residential mortgages. While residential loans focus on the borrower's personal income, commercial lenders prioritize the income-generating potential of the property itself. This calculator helps you determine if a commercial asset is financially viable and bankable.
Key Commercial Metrics Explained
- DSCR (Debt Service Coverage Ratio): This is the most critical metric for lenders. It measures the property's ability to cover its debt. A DSCR of 1.25 means the property earns 25% more than the annual mortgage payments. Most lenders require a minimum DSCR of 1.20 to 1.35.
- LTV (Loan-to-Value): The ratio of the loan amount to the purchase price. In commercial real estate, LTVs typically range from 65% to 80%, requiring higher down payments than residential properties.
- Amortization vs. Term: Commercial loans often have a 25-year amortization period (to keep payments low) but a much shorter "term" (e.g., 5, 7, or 10 years). At the end of the term, the remaining balance—the Balloon Payment—must be paid off or refinanced.
Practical Scenario: Medical Office Building
Imagine you are purchasing a medical office building for $2,500,000. You put 30% down ($750,000), leaving a loan of $1,750,000. At a 6% interest rate over a 25-year amortization and a 10-year term, your monthly payment would be roughly $11,275. If the property generates a Net Operating Income (NOI) of $220,000 annually, your DSCR would be 1.63, making it a very strong candidate for bank financing.
Why Net Operating Income (NOI) Matters
NOI is the "Engine" of commercial real estate. It is calculated by taking the Gross Rental Income and subtracting all Operating Expenses (taxes, insurance, maintenance, utilities, management). Crucially, NOI does not include the mortgage payment. Lenders use NOI to determine how much debt the property can safely handle.