Commercial Loan Calculator

A 30-year residential mortgage fully amortizes: you make 360 payments and owe nothing. A commercial loan splits those two ideas apart. The amortization schedule sets the payment size (25 or 30 years is typical), while a separate, much shorter term — usually 5, 7, or 10 years — sets when the loan actually comes due. At the end of the term you owe the remaining balance in one lump sum, called the balloon payment. You either refinance it, sell the property, or default.

The second difference is how the loan gets sized. A residential underwriter looks at your personal income and debt-to-income ratio. A commercial underwriter looks almost entirely at the property: they take net operating income and divide it by annual debt service to get the debt service coverage ratio (DSCR). Most lenders require at least 1.25x, meaning the building must produce $1.25 of NOI for every $1.00 of mortgage payments. The loan amount is then backed into from that constraint, subject to a loan-to-value cap of typically 65–75%.

The third difference is the interest-only period. Lenders frequently grant 12–36 months of interest-only payments at the front of the term, especially on value-add or lease-up deals where NOI hasn't stabilized yet. Interest-only payments are dramatically smaller, which flatters early cash flow and DSCR — but nothing is being paid down, so your balloon balance at maturity is larger than it would have been.

Assume a $2,500,000 loan at 6.75%, amortizing over 25 years, on a 10-year term with 24 months of interest-only at the front. The property produces $320,000 of stabilized NOI.

During the interest-only period the payment is simply $2,500,000 × 6.75% ÷ 12 = $14,062 per month. Once amortization kicks in, the payment rises to about $17,273 per month — a 23% jump that many first-time borrowers fail to budget for. Annual debt service on the amortizing payment is roughly $207,000, so DSCR = 320,000 ÷ 207,000 = 1.55x. That clears a 1.25x requirement comfortably.

At the end of year 10, only eight years of amortization have actually occurred (two were interest-only). The balance is still roughly $2.09 million — nearly 84% of the original loan. That number is the entire refinance risk of the deal. If cap rates have expanded or NOI has slipped, the property may no longer appraise high enough to support a new loan of that size, and you would need to bring cash to the closing table.

Run it the other way to see how lenders size debt. At 1.25x coverage, $320,000 of NOI supports about $256,000 of annual debt service, which at 6.75% over 25 years supports roughly $3.1 million of loan. In this case DSCR is not the binding constraint — loan-to-value probably is.

Below 1.00x — the property does not generate enough income to cover its own debt. You are funding the shortfall out of pocket. No conventional lender will originate at this level.

1.00x to 1.15x — technically covering, but with no margin. One large vacancy or a roof replacement puts you in default territory. Usually only seen on owner-occupied SBA deals where the business, not the rent roll, is the real credit.

1.20x to 1.25x — the standard minimum for stabilized multifamily and industrial with agency or bank debt. Fannie Mae and Freddie Mac small-balance multifamily programs typically start here.

1.30x to 1.45x — the common requirement for retail, office, and hotel, where income is less predictable and tenant credit matters more. CMBS lenders often sit in this band.

Above 1.50x — a conservatively levered deal. You will sleep well, but you may be leaving return on the table by not using more debt, assuming rates are below your unlevered yield.

Origination and lender fees. Commercial lenders typically charge 0.5% to 1.0% of the loan amount up front, which is real money on a multi-million-dollar deal.

Third-party reports. An appraisal, Phase I environmental site assessment, and property condition report together usually run $8,000 to $20,000 and are paid whether or not the loan closes.

Legal and title. Commercial closings involve loan documents negotiated by counsel on both sides; budget $10,000 to $30,000 depending on complexity.

Reserves and escrows. Lenders commonly require monthly escrows for taxes and insurance plus a replacement reserve of $250 to $350 per unit per year on multifamily, which reduces distributable cash flow but is not part of debt service.

Prepayment penalties. Yield maintenance and defeasance clauses can make an early payoff extraordinarily expensive — sometimes hundreds of thousands of dollars. Always model the exit before signing.

Recourse and guaranty terms. A non-recourse loan will price 25 to 50 basis points higher than a full-recourse loan on the same asset. That spread is not visible in a payment calculation but is very real.

In practice an underwriter runs three tests and lends the lowest of the three. The first is loan-to-value: appraised value multiplied by the maximum LTV, typically 70% to 75% for multifamily and 60% to 70% for office, retail, and hospitality.

The second is the debt service coverage test shown above: NOI divided by the minimum DSCR gives maximum annual debt service, which converts back into a loan amount at the quoted rate and amortization.

The third — increasingly the binding one in a higher-rate environment — is the debt yield test. Debt yield is NOI divided by loan amount, and lenders commonly require 9% to 10%. It deliberately ignores rate and amortization, so it cannot be gamed with a longer schedule or an interest-only period. On $320,000 of NOI, a 9% debt yield floor caps the loan at about $3.55 million regardless of what the payment math says.

This is why a borrower who focuses only on the monthly payment gets surprised at term sheet. The payment is an output. The loan amount is the negotiation, and it is determined by whichever of those three constraints bites first.