Commercial Real Estate (CRE) loans differ significantly from residential mortgages. While a residential loan is typically based on a borrower's personal income and credit, a commercial loan is primarily evaluated based on the property's ability to generate income. This calculator helps investors and developers estimate their debt service, LTV, and the critical Debt Service Coverage Ratio (DSCR).
Key Metrics in Commercial Lending
Loan-to-Value (LTV): Most commercial lenders require an LTV between 65% and 80%. This represents the ratio of the loan amount to the appraised value of the property.
Amortization vs. Loan Term: Unlike residential loans where these are often the same (e.g., 30 years), commercial loans often have a 20 or 25-year amortization schedule but a much shorter "term" (e.g., 5, 7, or 10 years). This results in a Balloon Payment at the end of the term.
Debt Service Coverage Ratio (DSCR): This is perhaps the most important metric. It is calculated as Net Operating Income (NOI) divided by total annual debt service. Most lenders look for a DSCR of 1.20x to 1.35x.
Example Calculation
Imagine purchasing a retail strip mall for $1,500,000 with a 25% down payment ($375,000). If the bank offers a 6.5% interest rate with a 25-year amortization and a 10-year term, your monthly payment would be roughly $7,595. However, because the loan term is only 10 years, you would owe a balloon payment of approximately $876,000 at the end of year 10, which usually requires refinancing or selling the property.
How to Use This Calculator
To get an accurate picture of your commercial financing, enter the purchase price and your intended down payment. Input the interest rate provided by your lender. Crucially, distinguish between the amortization period (how the monthly payment is calculated) and the loan term (when the balance is due). Finally, enter your expected Net Operating Income to see if the property meets standard DSCR requirements.
function calculateCRELoan() {
var purchasePrice = parseFloat(document.getElementById("purchasePrice").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var annualRate = parseFloat(document.getElementById("interestRate").value);
var amortizationYears = parseFloat(document.getElementById("amortizationTerm").value);
var termYears = parseFloat(document.getElementById("loanTerm").value);
var annualNOI = parseFloat(document.getElementById("annualNOI").value);
if (isNaN(purchasePrice) || isNaN(downPayment) || isNaN(annualRate) || isNaN(amortizationYears)) {
alert("Please enter valid numeric values.");
return;
}
var loanAmount = purchasePrice – downPayment;
var ltv = (loanAmount / purchasePrice) * 100;
var monthlyRate = (annualRate / 100) / 12;
var totalMonthsAmort = amortizationYears * 12;
var termMonths = termYears * 12;
// Monthly Payment Formula: P * [i(1+i)^n] / [(1+i)^n – 1]
var monthlyPayment = 0;
if (monthlyRate === 0) {
monthlyPayment = loanAmount / totalMonthsAmort;
} else {
monthlyPayment = loanAmount * (monthlyRate * Math.pow(1 + monthlyRate, totalMonthsAmort)) / (Math.pow(1 + monthlyRate, totalMonthsAmort) – 1);
}
// DSCR = Annual NOI / Annual Debt Service
var annualDebtService = monthlyPayment * 12;
var dscr = annualNOI / annualDebtService;
// Balloon Payment Formula: Remaining balance after termMonths
// B = P[(1+i)^n – (1+i)^p] / [(1+i)^n – 1]
var balloonBalance = 0;
if (termYears < amortizationYears) {
balloonBalance = loanAmount * (Math.pow(1 + monthlyRate, totalMonthsAmort) – Math.pow(1 + monthlyRate, termMonths)) / (Math.pow(1 + monthlyRate, totalMonthsAmort) – 1);
} else {
balloonBalance = 0;
}
// Total Interest Paid over the term
var totalPaidDuringTerm = monthlyPayment * termMonths;
var principalPaidDuringTerm = loanAmount – balloonBalance;
var totalInterest = totalPaidDuringTerm – principalPaidDuringTerm;
// Display results
document.getElementById("resLoanAmount").innerText = "$" + loanAmount.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resLTV").innerText = ltv.toFixed(2) + "%";
document.getElementById("resMonthlyPayment").innerText = "$" + monthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resDSCR").innerText = dscr.toFixed(2) + "x";
document.getElementById("resBalloon").innerText = "$" + balloonBalance.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resTotalInterest").innerText = "$" + totalInterest.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("creResults").style.display = "block";
}