Loan Parameters
Model Assumptions
- Fixed interest rate over the full loan term
- Monthly compounding and monthly payments
- Points and fees paid at closing (reduce net proceeds)
- No prepayment assumed — loan held to maturity
- Balloon payment due in full at maturity
For educational purposes. Not financial advice. Market conventions simplified.
Loan Summary
Formula Breakdown
Amortization Schedule
| Year | Begin Balance | Principal | Interest | End Balance |
|---|
Showing years 1–5 and final year before balloon.
Principal vs. Interest Breakdown
Understanding Commercial Mortgages
What is a Commercial Mortgage?
A commercial mortgage is a loan secured by commercial real estate — office buildings, retail centers, industrial properties, multifamily apartments, and other income-producing assets. Unlike residential mortgages, commercial loans are underwritten primarily based on the property's cash flow (measured by DSCR and debt yield) rather than the borrower's personal income.
The Balloon Payment Structure
Most commercial mortgages have a shorter loan term than amortization period. For example, a 10-year term with 30-year amortization means monthly payments are calculated as if the loan runs 30 years, but the entire remaining balance (the balloon payment) is due after 10 years. At that point, the borrower must refinance, sell, or pay the balloon in cash.
Effective Borrowing Cost vs. Stated Rate
The effective borrowing cost is the true annual cost of the loan, computed as the IRR of all cash flows including upfront points and fees. When origination points are charged, the borrower receives less than the face amount but makes payments on the full amount. This raises the true cost above the stated interest rate.
0 = −Net Proceeds + Σ PMT/(1+r)t + Balloon/(1+r)n
Effective Cost = r × 12 × 100
The Mortgage Constant
The mortgage constant (MC) is the ratio of annual debt service to the original loan amount. It captures both interest cost and principal repayment. For amortizing loans, the MC always exceeds the interest rate. In CRE analysis, comparing the MC to the property's cap rate indicates whether leverage enhances or diminishes equity returns.
Positive Leverage
When Cap Rate > Mortgage Constant, leverage generally enhances equity returns. The property's yield exceeds the cost of debt service.
Negative Leverage
When Cap Rate < Mortgage Constant, leverage generally reduces equity returns. The cost of debt service exceeds the property's yield.
When to Use This Calculator vs. Mortgage Calculator
Use this Commercial Mortgage Calculator when analyzing CRE loans with balloon payments, origination points, and mortgage constant analysis. Use the residential Mortgage Calculator for fully amortizing home loans without balloon payments or commercial-specific metrics.
Frequently Asked Questions
Disclaimer
This calculator is for educational purposes only and assumes a fixed interest rate with monthly compounding. Results are based on the Geltner commercial mortgage methodology with simplified assumptions. Actual loan terms, rates, and fees vary by lender, property type, market conditions, and borrower creditworthiness. Consult a qualified commercial real estate lender or financial advisor before making financing decisions.
