Commercial mortgage calculator
A commercial loan amortizes on one clock and matures on another, so the payment is only half the answer. This works out both: what you pay every month, and the balance still owed on the maturity date. It also prices the interest-only period honestly, in the extra interest and the extra balance it leaves behind.
What is still owed when the term runs out
The balloon is usually the largest single figure in a financing and it is the one people arrive without. It is not a penalty and not a fee: it is the balance the schedule has not reached yet, and on the maturity date it has to be refinanced, paid off, or the property sold.
| Borrowed | $6,300,000 |
|---|---|
| Principal repaid over the term | $714,630 |
| Balance at maturity | $5,585,370 |
| Total paid over the term | $4,641,747 |
| Of which interest | $3,927,118 |
What the interest-only period costs
The same loan with and without it. Interest only is not free money: nothing is repaid while it runs, so the balance stays higher for the rest of the term and every month of interest after that is charged on the larger balance.
| Over the full term | With 24 months interest only | Amortizing from day one | Difference |
|---|---|---|---|
| Interest paid | $3,927,118 | $3,819,330 | $107,788 |
| Balance at maturity | $5,585,370 | $5,340,895 | $244,475 |
What you buy with it is cash flow in the years a business plan needs it: a lease-up, a renovation, a tenant taking occupancy. That can be worth both of those numbers. It is a trade, and it should be made as one.
The schedule
Payment, the split between interest and principal, and the balance at the end of each year.
Monthly payments at the coupon divided by twelve, which is the commercial convention. The payment is level and each month's interest is charged on the balance outstanding. Nothing here models an origination fee, a rate floor, an index reset, escrow, reserves, or a prepayment penalty, and a real term sheet usually carries several of those.
A payment is one line of an underwriting. Altyst reads the offering memorandum, the rent roll and the T-12, builds the income this payment has to come out of, sizes the debt on all three lender tests, and carries the balance through to the refinance or the sale.
Two clocks, one loan
The payment on a commercial mortgage comes out of the same level-payment formula a home loan uses. What is different is which number goes into it. The payment is computed on the amortization, the notional schedule over which the loan would repay itself, while the loan matures at the end of the term, which is usually much shorter. Thirty-year amortization on a ten-year term is the ordinary shape of a fixed-rate commercial quote.
The consequence is the number a residential calculator has no field for. Ten years of payments on a thirty-year schedule retire only a fraction of the principal, so on the maturity date most of the loan is still outstanding and falls due at once. That is the balloon. It is not a fee or a penalty: it is the part of the loan the schedule never got to, and it has to be refinanced, repaid, or the property sold. Underwriting a deal means having an answer for it years before it arrives.
A worked example
The figures the calculator loads with are the financing on the deal every tool on this site opens with: a $6,300,000 loan at 6.5%, thirty-year amortization, ten-year term, with two years of interest only at the front.
- The payment is $39,820.29 a month, $477,843 a year, once the loan amortizes. Divide that annual figure by the loan and you get the mortgage constant, 7.58%: the share of the loan that leaves as payments each year. Note that it is above the 6.5% coupon, because it includes the principal you are repaying.
- For the first two years the payment is $34,125 a month, which is interest and nothing else, so the balance does not move at all. In month 25 the payment steps up by $5,695.29 and stays there.
- At maturity, $5,585,370 is still owed. Ten years of payments retired about eleven percent of a loan whose schedule was written for thirty. That figure, not the monthly payment, is the one to plan around.
- The interest-only period cost about $107,788 in extra interest and left about $244,475 more outstanding than the same loan amortizing from day one. It was not free. What it bought was two years of lighter payments, which on a value-add plan can be exactly what makes the plan work.
The constant is the number worth carrying around
Annual debt service divided by the loan is the mortgage constant, and it does more work than the coupon does. Compare it to the going-in cap rate and you have the leverage question answered in one line: buy at a 6.0% cap and borrow at a 7.58% constant and the debt consumes more per dollar than the property produces per dollar, so the cash return on equity starts below the unlevered yield. That is negative leverage, and it is not automatically a mistake. It is a bet that growth or a renovation will close the gap, and it should be stated as one. The glossary entry works through both directions.
The constant also converts a payment into a loan, which is the arithmetic a coverage test runs backwards. $600,000 of NOI at a 1.25x floor supports $480,000 of debt service, and at a 7.58% constant that carries about $6.33m of loan. Change the amortization to twenty-five years and the constant rises to roughly 8.1%, which buys less loan on the same income and the same rate. This is why amortization is negotiated and not just accepted.
What interest only actually does to the coverage
While the loan is interest only, the payment is smaller, so the debt service coverage ratio is higher. On this quote, $600,000 of NOI covers a $409,500 interest-only payment at about 1.47x and covers the $477,843 amortizing payment at about 1.26x. Same property, same income, same loan, two ratios more than two tenths apart. A lender sizing the loan uses the lower one, because that is the payment the property has to carry for most of the term, and a borrower quoting the higher one is quoting the years in which nothing is being repaid. The DSCR calculator shows the cushion in dollars, and interest only versus amortizing works the comparison through in full.
What this page does not do
It prices a fixed-rate loan on a level schedule and nothing else. It does not model an origination fee, an exit fee, a rate floor or cap, an index reset on a floating quote, escrow, reserves, a springing cash sweep, or a prepayment penalty, and a real term sheet usually carries several of those. Yield maintenance and defeasance in particular can make repaying early cost far more than the balance, and they live in the glossary. It does not tell you what rate you will be quoted, and it is not a loan offer. It is arithmetic on the numbers you typed, with the conventions it used stated on the page.
Questions
How is a commercial mortgage payment calculated?
The same level-payment formula a home loan uses, with one difference that changes the answer: the payment is computed on the amortization period, not on the loan term. A $6,300,000 loan at 6.5% amortizing over thirty years pays $39,820.29 a month whether the loan matures in five years or in thirty. What the term decides is not the payment but how much of the loan is left when it comes due.
What is a balloon payment on a commercial mortgage?
The balance still outstanding on the maturity date. Because commercial loans amortize on a longer schedule than they run for, the loan does not pay itself off inside its term, and whatever the schedule has not retired falls due at once. On a ten-year term against thirty-year amortization, most of the original loan is still outstanding at maturity. It is refinanced, paid off, or the property is sold, and planning for which one is part of underwriting the deal rather than a detail of the loan.
What is a mortgage constant?
Annual debt service divided by the loan amount: the share of the loan that leaves as payments each year, principal and interest together. A 6.5% coupon on thirty-year amortization has a constant of about 7.58%. It is a useful number because it converts directly between a payment and a loan balance, which is exactly the arithmetic a coverage test runs, and because comparing it to the going-in cap rate tells you at a glance whether leverage is adding to the cash return or subtracting from it.
Does an interest-only period make a loan cheaper?
No. It makes the early payments smaller and the loan more expensive. Nothing is repaid while it runs, so the balance stays at its opening figure, every month of interest afterwards is charged on a larger balance, and more is left owing at maturity. On the default quote here, two years of interest only costs about $107,788 of extra interest over the term and leaves about $244,475 more outstanding on the maturity date. What it buys is cash flow in the years a business plan needs it, which can easily be worth both figures. It is a trade, and it should be made as one.
Why does my payment jump after the interest-only period ends?
Because the amortizing payment was never reduced, only deferred. During interest only you pay the coupon on the balance and nothing else; when it ends you begin paying the full level payment computed on the entire amortization schedule, which still has its original length. On the default quote the monthly payment steps from $34,125 to $39,820.29 in month 25, and the coverage ratio drops with it, from about 1.47x to about 1.26x on the same income. A loan can look comfortable in year one and tight in year three with nothing at the property having changed.
Is a commercial mortgage calculated monthly or annually?
Monthly in almost every case, with the periodic rate taken as the annual coupon divided by twelve rather than as an effective monthly equivalent. That is market convention rather than an approximation of one, and it is what this page does. Some construction and bridge facilities accrue on an actual over 360 basis, which produces a slightly higher effective cost; that convention is not modeled here.
How much can I borrow?
That is a different question and it has a different calculator. A lender sizes the loan against three tests at once, a maximum loan to value, a minimum debt service coverage ratio, and a minimum debt yield, then funds the smallest of the three answers. Which test binds is the useful fact, because it tells you what would actually change the proceeds. The loan sizing calculator on this site runs all three and names the binding one.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
The payment is one row of the model
Altyst reads the offering memorandum, the rent roll, and the T-12, builds the income the payment has to come out of, sizes the debt on all three lender tests, and carries the balance year by year to the refinance or the sale.