Commercial Real Estate Loan Calculator
Analyze debt service coverage, loan-to-value, and balloon payments for commercial properties.
Loan Analysis Summary
Loan Amount
$0.00
Monthly P&I Payment
$0.00
Net Operating Income (NOI)
$0.00
DSCR
0.00
Loan-to-Value (LTV)
0%
Balloon Payment (Year 10)
$0.00
Understanding Commercial Real Estate Financing
Commercial Real Estate (CRE) loans differ significantly from residential mortgages. While residential loans focus heavily on the borrower's personal income and credit score, commercial lenders look primarily at the property's ability to generate income to cover the debt.
Key Metrics in CRE Lending
- DSCR (Debt Service Coverage Ratio): This is the most critical metric for commercial lenders. It is calculated by dividing the Net Operating Income (NOI) by the annual debt service. Most lenders require a minimum DSCR of 1.20x to 1.35x.
- Loan-to-Value (LTV): The ratio of the loan amount to the appraised value. CRE loans typically require higher down payments than residential ones, often resulting in LTVs between 65% and 80%.
- Amortization vs. Term: A common feature of CRE loans is a long amortization period (e.g., 25 years) with a shorter loan term (e.g., 5 or 10 years). This results in a "balloon payment" at the end of the term.
Example Scenario: You purchase a retail strip mall for $1,000,000 with a 25% down payment ($250,000). With a 6.5% interest rate and a 25-year amortization, your monthly payment would be approximately $5,066. If the property generates $105,000 in Net Operating Income (NOI) per year, your DSCR would be 1.73 ($105,000 / $60,792 annual debt), making it a very strong candidate for financing.
How to Calculate Net Operating Income (NOI)
NOI is the foundation of CRE valuation. To find it, take the total potential rental income, subtract vacancy losses, and then subtract all operating expenses (taxes, insurance, maintenance, utilities, management fees). Important: Debt service (loan payments) is NOT included in operating expenses when calculating NOI.
Why the Balloon Payment Matters
Because most commercial loans are not fully amortizing (the term is shorter than the amortization), you must be prepared to refinance the remaining balance, sell the property, or pay off the balance when the term ends. Failure to do so can result in technical default even if all monthly payments were made on time.