How CRE loan payments are calculated
Commercial real estate loans use the same monthly payment formula as residential mortgages — the difference is the structure. Most CRE loans are partially amortizing: the monthly payment is based on a longer amortization schedule (e.g., 25 years), but the full balance does not pay off over that period. Instead, after a shorter loan term (e.g., 10 years), the remaining balance is due as a balloon payment.
Monthly payment formula:
P = L × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where L = loan amount, r = monthly rate (annual rate ÷ 12), and n= amortization months.
Balloon payment = remaining principal balance at end of loan term, computed as:
Balloon = L × [(1+r)ⁿ − (1+r)ᵗ] / [(1+r)ⁿ − 1]
Where t = loan term months. When term equals amortization, the balloon is zero (fully amortizing loan).
What is a typical CRE loan structure?
| Loan type | Typical LTV | Amortization | Term | Balloon |
|---|---|---|---|---|
| Conventional bank (investment) | 65–75% | 20–25 yr | 5–10 yr | Yes |
| SBA 504 (owner-occupied) | 90% | 25 yr | 25 yr | No |
| CMBS / conduit | 65–75% | 25–30 yr | 10 yr | Yes |
| Bridge loan | 65–80% | Interest-only | 1–3 yr | Full |
| USDA Business & Industry | 80% | 30 yr (real estate) | 30 yr | No |
DSCR in commercial real estate
Lenders underwrite CRE loans using the debt service coverage ratio (DSCR) — the property's net operating income divided by the annual debt service. Most lenders require a minimum DSCR of 1.20–1.30×; 1.25× is the most common threshold.
A DSCR below 1.0 means the property does not generate enough income to cover its debt payments — the borrower must subsidize the shortfall from other income. Lenders may still approve a loan below 1.25× for strong-credit borrowers with large reserves, but will require additional collateral or recourse.
Note: this DSCR uses property-level NOI. For a business-occupancy property (owner-occupied), lenders often underwrite global cash flow (business income + personal income) rather than property NOI alone. Use the business DSCR calculator for that scenario.
Worked example
You are purchasing a 6-unit apartment building for $1,200,000. The lender requires 25% down ($300,000). The loan is $900,000 at 7.25%, amortized over 25 years with a 10-year term. Annual NOI is $84,000.
- Monthly payment: ~$6,470
- Annual debt service: ~$77,640
- DSCR: $84,000 ÷ $77,640 = 1.08× — below the 1.25× threshold
- Balloon payment at year 10: ~$756,000
- Total interest over 10 years: ~$222,000
In this example the DSCR is marginal. Options to improve it: negotiate a lower rate, increase down payment to reduce the loan amount, or find a property with higher NOI per dollar of purchase price.
What this calculator does not cover
- Adjustable-rate loans. Re-run the calculator at each rate reset to see how your payment changes. Most CRE ARMs reset every 3–5 years.
- Interest-only periods. Some bridge loans are interest-only for the full term. For those, monthly payment = loan amount × monthly rate; the full loan balance is the balloon.
- Origination fees and closing costs. Add points and lender fees to your down payment outlay; they do not change the monthly payment calculation.
- Defeasance and prepayment penalties. Most CMBS loans carry defeasance clauses; conventional bank loans often have step-down prepayment penalties. These are deal-specific — review your term sheet carefully.
Sources
- Federal Reserve Bank of St. Louis — FRED: 30-Year Fixed Rate Mortgage Average (accessed 2026-10-20)
- SBA — "SBA 504 Loan Program: Eligible Project Costs" (accessed 2026-10-20)
- FDIC — "Supervisory Insights: Commercial Real Estate Loan Workouts" (accessed 2026-10-20)