Summary
Using the Commercial Mortgage Calculator
To calculate an estimated payment, you'll need to input a few essential details, including the:
- Loan Amount ($)
- Interest Rate (%)
- Loan Term (years)
- Amortization Period (years)
Commercial real estate loans typically have terms from 5 to 20 years, while the amortization period may be longer, impacting monthly payments more than the interest rate alone.
Understanding the Loan Calculator Results An amortization schedule shows how each monthly payment divides between interest and principal over time. Early on, most of your payment covers interest, but this gradually shifts toward paying down the principal as the loan term progresses.
When budgeting for a commercial mortgage, remember your monthly payment is just one of several expenses tied to property ownership. You'll need to account for insurance, property taxes (often paid into an escrow monthly), utilities, and maintenance, all of which should fit within your company's budget.
Key Terms for Commercial Real Estate Loans
Here are some terms you'll encounter when exploring loan options:
- Amortization Period: The repayment schedule that splits payments between principal and interest. Over time, more of the payment goes toward principal.
- Balloon Payment: A large, final payment due at the end of some loan terms.
- Basis Point (BP): Equal to 1/100th of 1% (0.01%).
- Debt Service: The funds required to cover loan payments.
- Debt Service Coverage Ratio (DSCR): A measure of loan repayment ability, calculated by dividing net operating income by debt payments.
- Cap Rate: The periodic adjustment limit on an adjustable mortgage rate.
- Collateral: The property or asset that secures the loan.
- Loan to Value Ratio (LTV): Measures loan size against the property value, indicating risk.
- Debt Yield: Calculated by dividing the property’s net income by the loan amount, showing potential returns if foreclosed.
- Maturity Date: The date when the final loan payment is due.
- Prime Rate: The baseline rate lenders offer their top clients.
- Prepayment Penalty: A fee for early loan payoff, often structured as yield maintenance or defeasance.
- Principal and Interest (P&I): The main components of a loan payment; principal is the amount borrowed, and interest is the cost of borrowing.
- Refinance: The process of replacing an existing loan with a new one under revised terms.
- Non-Recourse Loan: A loan where the lender cannot claim personal assets in case of default, unless specific terms are violated.
This calculator helps streamline your mortgage planning, providing a clear view of the costs involved in a commercial property purchase or refinance.