Commercial Loan Calculator

Commercial Loan Calculator

Calculate commercial real estate (CRE) mortgages, monthly debt service, balloon payment balances, LTV, and debt yield.

Commercial Real Estate Terms

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Evaluates Debt Service Coverage (DSCR) & Debt Yield.

CRE Financing Summary

Monthly Principal & Interest Payment
$6,218
Based on 25-Year Amortization
Maturity Balloon Balance
$716,420
Loan-to-Value (LTV)
75.0%
Debt Service Coverage (DSCR)
1.54x
Debt Yield
12.78%
Annual Debt Service $74,616
Total Interest Paid Until Balloon $540,236
Total Principal Paid Until Balloon $183,580
Required Down Payment Equity $300,000

Commercial Real Estate (CRE) Underwriting Methodology

Unlike residential mortgages that amortize over the entire loan life (e.g., 30-year fixed), commercial mortgages commonly use a two-tiered structure: monthly payments are calculated over a longer amortization schedule (20–30 years), but the promissory note matures early (typically 5, 7, or 10 years), triggering a mandatory Balloon Payment.

Core Commercial Underwriting Formulas:

1. Monthly Payment (M) = P × [r(1 + r)^n_amort] ÷ [(1 + r)^n_amort - 1]
2. Balloon Balance = Outstanding Principal at Month (n_term × 12)
3. Loan-to-Value (LTV) = (Loan Amount ÷ Property Purchase/Appraised Value) × 100
4. Debt Service Coverage Ratio (DSCR) = Annual NOI ÷ Annual Debt Service
5. Debt Yield = (Annual Net Operating Income ÷ Total Loan Principal) × 100

Underwriting Thresholds for Commercial Lenders

  • Loan-to-Value (LTV): Institutional lenders usually cap commercial LTV between 65% and 75%, requiring substantial equity commitment.
  • DSCR: Lenders typically mandate a minimum DSCR of 1.25x to ensure sufficient cash flow cushion against tenant vacancies.
  • Debt Yield: Measures lender cash-on-cash return if they were to foreclose. Lenders commonly require a minimum debt yield of 9.0% to 11.0%.

Worked Example: $900,000 CRE Balloon Note

Consider the acquisition of a $1,200,000 commercial retail building financed with a $900,000 note at 6.75% interest on a 25-year amortization schedule with a 10-year balloon maturity, backed by $115,000 annual NOI:

  • Loan Principal (P): $900,000
  • Amortization Period: 25 Years (300 months)
  • Balloon Maturity: 10 Years (120 months)
  • Monthly Interest: 6.75% ÷ 12 = 0.5625%

Step-by-step resolution:

  1. Monthly Payment: $900,000 × [0.005625 × (1.005625)^300] ÷ [(1.005625)^300 - 1] = $6,218.00
  2. Annual Debt Service: $6,218.00 × 12 = $74,616.00
  3. LTV: $900,000 ÷ $1,200,000 = 75.0%
  4. DSCR: $115,000 (NOI) ÷ $74,616 = 1.54x (Exceeds typical 1.25x underwriting minimum)
  5. Debt Yield: ($115,000 ÷ $900,000) × 100 = 12.78% (Well above the 10.0% benchmark)
  6. Balloon Due at Year 10: Remaining unamortized balance = $716,420.00 (Must be refinanced or paid off).

Frequently Asked Questions (FAQ)

What options do I have when the balloon payment comes due?
Borrowers typically have three options: (1) Refinance the remaining balance into a new commercial loan with either the existing or a new lender, (2) Sell the commercial property and satisfy the debt from sale proceeds, or (3) Pay off the balance using corporate cash reserves.
Why do lenders evaluate Debt Yield in addition to DSCR?
DSCR is sensitive to interest rates and amortization length (a longer amortization creates a deceptively high DSCR). Debt Yield is completely rate-independent, measuring pure property earning power relative to the dollars lent.
What are prepayment penalties on commercial real estate loans?
Many commercial loans include prepayment penalties such as Step-Down schedules (e.g., 5-4-3-2-1%), Yield Maintenance (reimbursing the lender for lost reinvestment spread), or Defeasance (substituting the real estate collateral with government securities).