Commercial Mortgage Calculator
Estimated Monthly Payment:
Understanding Commercial Mortgages and Your Payment
A commercial mortgage is a loan used to finance the purchase or development of commercial real estate, such as office buildings, retail spaces, industrial warehouses, or apartment complexes. Unlike residential mortgages, commercial mortgages are typically secured by the property itself, and their terms can be more complex, often involving shorter repayment periods and the potential for balloon payments.
The monthly payment for a commercial mortgage is calculated based on several key factors: the loan amount, the interest rate, the loan term (the total time over which the loan is repaid), and the amortization period (the schedule used to determine the principal and interest payments). For commercial loans, the amortization period can sometimes be longer than the loan term, leading to a balloon payment at the end of the loan term.
The Calculation Explained:
The primary formula used for calculating the monthly principal and interest (P&I) payment for a standard amortizing loan is the annuity formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M= Your total monthly mortgage payment (Principal & Interest)P= The principal loan amount (the total amount you borrowed)i= Your monthly interest rate (annual rate divided by 12)n= The total number of payments over the loan's amortization period (loan term in years multiplied by 12)
Example:
Let's say you're purchasing an office building with a commercial mortgage of $1,000,000 at an annual interest rate of 6.5%, amortized over 25 years (300 months), with a loan term of 25 years and no balloon payment (0% balloon payment).
P= $1,000,000- Annual Rate = 6.5%
i= 6.5% / 12 = 0.065 / 12 ≈ 0.0054167- Loan Term = 25 years
n= 25 years * 12 months/year = 300 payments
Using the formula:
M = 1,000,000 [ 0.0054167(1 + 0.0054167)^300 ] / [ (1 + 0.0054167)^300 – 1]
M ≈ $6,701.71
Your estimated monthly P&I payment would be approximately $6,701.71.
Balloon Payments in Commercial Mortgages:
Commercial mortgages often have a shorter loan term than their amortization period. For instance, a loan might be structured with a 5-year term but amortized over 20 years. In such cases, after 5 years of payments calculated on a 20-year schedule, a significant remaining balance—known as a balloon payment—will be due in full.
Example with Balloon Payment:
Consider a commercial loan of $1,000,000 at 6.5% annual interest, amortized over 25 years (300 months), but with a shorter loan term of 5 years (60 months) and a balloon payment representing 70% of the initial loan amount.
- The initial monthly P&I payment would still be calculated using the full amortization period (25 years). Using the previous example, this is approximately $6,701.71.
- After 5 years (60 payments), the remaining principal balance on the loan would need to be calculated.
- The balloon payment would be 70% of the initial $1,000,000 loan, which is $700,000. This amount would be due at the end of the 5-year term.
This calculator will estimate the monthly payment based on the provided amortization period and highlight the potential balloon payment if the loan term is shorter than the amortization period.
Loan Purpose: The selected loan purpose (Purchase, Refinance, Construction) can influence lender requirements, terms, and underwriting processes for commercial mortgages, but it does not directly alter the core payment calculation formula for P&I.