Commercial Loan Calculator
Calculate monthly payments, DSCR, and LTV for commercial real estate
Loan Summary
Understanding Commercial Loan Calculations
Commercial real estate financing differs significantly from residential mortgages. Lenders prioritize the income-generating potential of the property over the individual borrower's credit score alone. This commercial loan calculator helps you analyze the feasibility of an investment property by focusing on three critical metrics: LTV, DSCR, and Balloon Payments.
1. Loan-to-Value (LTV) Ratio
The LTV ratio measures the loan amount against the property value. In commercial lending, lenders typically look for an LTV between 65% and 80%. A lower LTV usually results in better interest rates and a higher probability of loan approval. For example, if you purchase a warehouse for $1,000,000 with a $250,000 down payment, your LTV is 75%.
2. Debt Service Coverage Ratio (DSCR)
DSCR is perhaps the most important metric for commercial lenders. It is calculated by dividing the Annual Net Operating Income (NOI) by the annual debt service (total loan payments). A DSCR of 1.25 means the property generates 25% more income than is required to pay the mortgage. Most commercial lenders require a minimum DSCR of 1.20x to 1.35x.
3. Amortization vs. Loan Term
It is common for commercial loans to have an amortization period (e.g., 25 years) that is longer than the actual loan term (e.g., 10 years). This means that while the monthly payments are calculated as if the loan lasts 25 years, the entire remaining balance (the Balloon Payment) is due at the end of the 10th year. Investors typically refinance or sell the property before this balloon payment becomes due.
Commercial Loan Example
If you buy an office building for $2,000,000 with 30% down ($600,000) at 7% interest with a 25-year amortization, your monthly payment would be approximately $9,895. If the building generates $180,000 in annual NOI, your DSCR would be 1.52, making it a very attractive loan for most banks.