How to use the commercial mortgage calculator
Enter the property value and the loan terms a lender is quoting, then add the property’s NOI to see whether the income supports the loan. The defaults describe a typical stabilized apartment building, so you can see how the results fit together before entering your own numbers.
- Property value or price ($3,000,000 default): the purchase price, or the appraised value for a refinance.
- Loan-to-value (65% default): the loan as a share of the value. The loan amount is value × LTV.
- Interest rate (6.5% default): the annual fixed rate on the loan.
- Amortization (30 years default): the schedule used to calculate the payment. A longer amortization lowers the payment and leaves a bigger balloon.
- Loan term (10 years default): when the loan matures. Whatever balance is left at the end of the term is due as a balloon.
- Interest-only period (0 years default): years at the start when you pay only interest. After that, the loan amortizes over the amortization minus the interest-only years.
- Annual NOI ($230,000 default, optional): net operating income, which is rent and other income minus operating expenses, before debt service. It drives the DSCR, debt yield and maximum loan results.
What the results mean
The calculator runs the loan month by month to the end of the term and returns these numbers:
- Loan amount: value × LTV.
- Monthly payment during interest-only: shown only if you enter an interest-only period.
- Monthly amortizing payment: principal and interest once the loan starts paying down.
- Annual debt service (year 1): the sum of the first 12 payments.
- Balloon balance at end of term: what you owe when the loan matures.
- Total interest over the term: every dollar of interest paid from the first payment to maturity.
- DSCR: NOI ÷ year-1 annual debt service. Above 1.00x, the property covers its loan payments.
- Debt yield: NOI ÷ loan amount, the lender’s return on the loan if it had to take the property back.
- Maximum loan at 1.25x DSCR: the largest loan the NOI supports at a 1.25x coverage ratio, using the same rate and amortization.
- Equity needed: value − loan, the cash a buyer brings before closing costs.
The formulas behind the calculator
The payment math is the standard fixed-rate loan formula, and the ratios are the ones lenders use in underwriting. In the table, r is the annual rate ÷ 12 and n is (amortization − interest-only years) × 12.
| Result | Formula |
|---|---|
| Loan amount | Value × LTV |
| Interest-only payment | Loan × r |
| Amortizing payment | Loan × r ÷ (1 − (1 + r)^−n) |
| Annual debt service (year 1) | Sum of the first 12 monthly payments |
| Balloon balance | Balance left after the last payment of the term, from a month-by-month schedule |
| Total interest over the term | Sum of each month’s balance × r through the end of the term |
| DSCR | NOI ÷ year-1 annual debt service |
| Debt yield | NOI ÷ loan amount |
| Maximum loan at 1.25x | (NOI ÷ 1.25) ÷ (12 × amortizing payment per $1 of loan) |
| Equity needed | Value − loan amount |
Worked example: a $3,000,000 apartment building
With the default inputs, a $3,000,000 apartment building is financed at 65% LTV, so the loan is $1,950,000 and the buyer needs $1,050,000 of equity. At 6.5% on a 30-year amortization, the monthly payment is $12,325.33 and year-1 debt service is $147,903.92.
The loan matures after 10 years with a balloon balance of $1,653,134.46, so only about $296,866 of principal is paid down over the term. Total interest over those 10 years is $1,182,173.64. With $230,000 of NOI, the DSCR is 1.56x and the debt yield is 11.8%.
At 1.25x, that NOI could support a loan of about $2,425,899, which is more than the $1,950,000 the 65% LTV allows. In this case the LTV limit, not the DSCR, sets the loan size. Add a 2-year interest-only period and the payment drops to $10,562.50 for the first 24 months, then rises to $12,616.81 because the loan now amortizes over 28 years. Year-1 debt service falls to $126,750 and the DSCR rises to 1.81x, but the balloon grows to $1,692,230.18 and the maximum loan at 1.25x drops to about $2,369,854.
| Result | No interest-only | 2 years interest-only |
|---|---|---|
| Loan amount | $1,950,000 | $1,950,000 |
| Interest-only payment | None | $10,562.50 |
| Amortizing payment | $12,325.33 | $12,616.81 |
| Year-1 debt service | $147,903.92 | $126,750.00 |
| Balloon at year 10 | $1,653,134.46 | $1,692,230.18 |
| Total interest, 10 years | $1,182,173.64 | $1,206,944.28 |
| DSCR | 1.56x | 1.81x |
| Debt yield | 11.8% | 11.8% |
| Maximum loan at 1.25x | $2,425,899 | $2,369,854 |
| Equity needed | $1,050,000 | $1,050,000 |
How is a commercial mortgage different from a home loan?
A commercial mortgage is underwritten mostly on the property’s income, and it usually comes due long before it’s paid off. A typical home loan is a 30-year fully amortizing mortgage based on the borrower’s personal income. A commercial or multifamily loan is sized on NOI and value, and the term is often shorter than the amortization, which leaves a balloon.
Because a loan on a 5+ unit rental is credit for a business purpose, most federal consumer mortgage rules don’t apply to it. That’s why balloons, prepayment penalties and personal guarantees are normal in commercial lending.
| Feature | Typical home loan | Typical commercial or multifamily loan |
|---|---|---|
| What it’s sized on | Borrower income and credit | Property NOI, value and the sponsor’s track record |
| Amortization vs term | Usually the same, such as 30 and 30 | Often different, such as a 30-year amortization with a 5-, 7- or 10-year term |
| Balloon | Uncommon | Common at maturity |
| Key tests | Debt-to-income, credit score, LTV | DSCR, LTV, debt yield |
| Prepayment | Usually no penalty | Often yield maintenance, defeasance or a step-down |
| Borrower | An individual | Usually an LLC or partnership that owns the property |
What do DSCR, LTV and debt yield tell a lender?
Lenders size a commercial loan by running several tests and lending the smallest amount that passes all of them. LTV limits the loan to a share of the appraised value. DSCR limits it so the NOI covers the payments with room to spare, and 1.25x is a common benchmark. Debt yield ignores the rate and amortization and simply asks how much NOI the property earns for every dollar lent.
That’s why the calculator shows both the LTV-based loan and the maximum loan at 1.25x DSCR. When rates are high, the DSCR test often binds first, and the loan comes in smaller than the LTV alone would allow. When rates are low, the LTV usually sets the ceiling.
What prepayment penalties do commercial loans carry?
Most fixed-rate commercial loans charge a fee to pay them off early, because the lender or the bondholders were counting on a set stream of interest. The three common structures work differently, and the loan documents control the exact terms.
- Yield maintenance: you pay a premium that roughly makes the lender whole for the interest it loses, based on how far market rates have moved since closing. The fee is usually largest when rates have fallen.
- Defeasance: instead of paying the loan off, you buy a portfolio of government securities that replaces the loan’s remaining payments as collateral. It’s common on CMBS loans and adds legal and setup costs.
- Step-down: a set percentage of the balance that falls over time, such as a schedule that declines year by year until it reaches zero near maturity.
- Open period: many loans let you prepay without a penalty in the last few months before maturity, which is when most refinancing or sales happen.
Where do multifamily loans come from?
Apartment buildings with 5+ units have more loan sources than most commercial property types. Each lending source fits a different kind of property and borrower, and rates and terms change with the market, so get current quotes rather than relying on rules of thumb.
| Source | How it works | Often fits |
|---|---|---|
| Fannie Mae | Loans made through approved Delegated Underwriting and Servicing (DUS) lenders and sold to Fannie Mae | Stabilized properties that want long fixed-rate terms |
| Freddie Mac | Loans made through approved Optigo lenders, including conventional and small-loan options | Stabilized properties, including smaller apartment loans |
| HUD 223(f) | FHA mortgage insurance for the purchase or refinance of existing multifamily properties | Long-term holders who can accept a longer, paperwork-heavy process |
| Banks and credit unions | Loans held on the lender’s own books, often with shorter terms and a personal guarantee | Local owners, smaller buildings and relationship borrowers |
| Life insurance companies | Conservative loans held for the long term | High-quality properties with lower leverage |
| CMBS | Loans pooled into commercial mortgage-backed securities and handled by a servicer | Borrowers who want nonrecourse debt and can live with defeasance or yield maintenance |
| Bridge lenders | Short-term loans, often floating-rate and interest-only | Renovations, lease-ups and properties not yet ready for permanent debt |
What lenders look at on a 5+ unit apartment building
For an apartment building, lenders evaluate the real estate first and the borrower second. You can expect to provide documents like these for any acquisition or refinance:
- A current rent roll and trailing 12-month operating statement, which lenders use to set the NOI they will underwrite.
- Occupancy history, lease terms, concessions and collections.
- Property condition, deferred maintenance and the capital plan, often confirmed by a third-party report.
- Taxes, insurance and utility costs, including any reassessment after a sale.
- The appraisal and the market cap rate, which set the value behind the LTV.
- The borrower’s net worth, liquidity, credit and experience owning similar buildings.
Facing a loan maturity or a hard refinance? You can sell instead
If your balloon is coming due and the numbers no longer work for a new loan, selling the building can be cleaner than a cash-in refinance or a rushed extension. Higher rates can shrink the loan a property qualifies for under the DSCR test, which can leave an owner short of the balance due at maturity.
Skyline Capital Investments buys apartment buildings with 5+ units nationwide as a direct buyer. We can be flexible around your maturity date, consider seller financing on part of the price, and work with 1031 exchange timelines if you want to trade into another property. Send the address and unit count through the form on this page or call (469) 660-2977, and we typically respond within 48 hours.
