Commercial loan payment and balloon calculator

Read the result, not just the payment

The payment tells you whether the property carries the debt each month. The balloon tells you whether you keep the property at all.

This is the difference between a commercial mortgage and a house loan. A 30 year house loan amortises over 30 years and matures in 30 years, so the balance reaches zero on the day it ends. A commercial mortgage amortises over 25 or 30 years but matures in 5, 7 or 10. On maturity day the balance is still most of what you borrowed, and it becomes due in full.

Here is what a 5 year term does to a 2,000,000 dollar loan on a 25 year amortisation, priced at 6.75 percent:

Five years of payments retire about 9 percent of the loan. The other 91 percent has to be refinanced, into whatever market exists on that date — not the one you borrowed in.

The share barely moves with the rate, and it moves the wrong way. Run the same loan at 5.75 percent and 89.6 percent is still outstanding; at 7.75 percent it is 92.0 percent. A higher rate means more of each payment is interest, so a dearer loan repays less principal, not more.

The three numbers a lender checks before your payment matters

Your payment is affordable or it is not, and the lender decides that with a ratio, not an opinion. Three limits apply at once, and the smallest of the three sets your loan:

• Debt service coverage. Your net operating income divided by the annual debt service. A lender wants a cushion above 1.00, so the property still pays the loan if income dips.
• Loan to value. The loan divided by the appraised value.
• Debt yield. Your net operating income divided by the loan amount. It ignores the rate and the amortisation entirely, which is why a lender trusts it when rates move.

Our loan sizing tool runs all three at once and names the one that binds. Use this page for the payment and the balloon; use that one for how large a loan the property supports in the first place.

What an interest-only period really costs

Interest-only is common on a value-add deal, and it does exactly what it says: for a set number of months you pay only interest, and nothing comes off the balance.

Set the interest-only field above to 24 months on a 5 year term and watch the balloon rise. You paid less each month for two years. You now refinance a larger number. That trade is sometimes right — a property in lease-up may not produce enough income to cover an amortising payment yet — but it is a trade, not a discount.

What this calculator does not know

It knows the arithmetic. It does not know your property. It cannot see:

• Whether a lender will accept your rent roll, or discount it for short leases and concessions.
• What the appraisal will say.
• Your reserves for taxes, insurance, and replacement, which a lender escrows on top of the payment.
• Prepayment terms, which decide what it costs to leave the loan early.
• Closing costs, which are real money and are not in the payment.

Those are the parts that move a real quote, and they are the reason a written indicative range is worth more than any calculator.