Commercial Mortgage Payment Calculator 2022CASAPLORERTrusted & Transparent
What is a commercial mortgage?
A commercial mortgage, also known as a commercial real estate loan or a commercial property loan, is a loan for income-producing properties, instead of residential mortgages which are for homes. Income-producing commercial real estate include office, retail, and industrial buildings.
While residential mortgages are usually amortized with the term being equal to the amortization period, commercial mortgages usually have terms that are shorter than the mortgage's amortization period. For example, a commercial mortgage might have an amortization period of 25 years but a term of 5 years. This means that after 5 years, the commercial mortgage would either need to be paid off in full with a balloon payment, or renewed for another term at current market rates. If you choose to renew, you'll be "resetting" your existing mortgage for a new term. Your interest rate will be reset to match current market rates, and your amortization schedule will be recalculated.
What is a balloon payment?
A balloon payment is the balance remaining on the mortgage when the principal is due. Since commercial mortgages are amortized over a longer period than the term length, you will have a remaining balance when the term is over. At the end of the term, this balloon payment can be rolled over into a mortgage reset for another term, paid off by selling the property, or addressed ahead of time by being refinanced.
Some commercial real estate loans are interest-only loans. As only interest payments are required during the term, the balloon payment for an interest-only loan will be the same as the initial loan amount.
|Commercial Mortgage Averages|
|Average Interest Rate||5% to 7%|
|Median Loan Term||10 Years|
|Loan-to-Value (LTV) Ratio||75% to 80%|
|Average Debt Service Coverage Ratio (DSCR)||1.25|
The SBA 504 is a commercial real estate loan that is backed by the U.S. Small Business Administration. To qualify, you must be a for-profit company that has a net worth of less than $15 million and average net income of less than $5 million.
This loan can be used to purchase and construct new and existing buildings. It can also be used to renovate existing buildings.
504 loans have three term options: 10-years, 20-years, and 25-years. You can borrow up to $5 million with a LTV ratio of up to 90%.
You cannot get a SBA 504 loan from a major bank. The SBA only allows Certified Development Companies (CDC) to lend 504 loans. The CDC that you work with will partner with a third-party bank to finance your 504 loan.
This third-party bank or credit union will finance 50% of your 504 loan as a first mortgage. The CDC will finance 40% as a second mortgage, and you must finance the remaining 10% through a required down payment.
504 rates for the CDC’s portion follows U.S. Treasury yields with an added spread. As of May 2021, this ranged from 2.2% to 2.4%. The bank or credit union's portion will be at their own rates up until a certain limit. You will also need to pay a guarantee fee, servicing fee, and a 2.15% fee to the SBA.
Freddie Mac Multifamily Loans
Fannie Mae and Freddie Mac both offer loans for multifamily properties. Freddie Mac has 5 to 10-year terms, with a maximum amortization of 30 years. You can borrow from $5 million to $100 million through their conventional loan, or $1 million to $7.5 million through their small balance loans. While loan amounts are commonly within these ranges, smaller or larger loan amounts can still be accepted.
You can borrow up to an LTV of 80% for amortizing loans with a term that is 7 years or longer. Terms less than 7 years have a maximum LTV of 75%.
Freddie Mac also offers full-term interest-only loans. The maximum LTV for interest-only loans is 70% for terms greater than 7 years, or 65% for less than 7 years.
USDA Business and Industry Loans
The USDA provides loans to purchase and develop commercial and industrial properties in rural areas (a population of less than 50,000). You can borrow up to 80% LTV and a maximum loan term of 40 years. An initial fee of 3% and an annual fee of 0.5% applies to the principal of the loan.