How commercial loan payments work
A commercial mortgage is priced and paid differently from a home loan. Most are written with a term of 5, 7 or 10 years and an amortization period of 20 to 30 years. The monthly payment is calculated as if the loan would be paid off over the full amortization period, but the loan actually comes due at the end of the shorter term. Whatever principal is still owed then is the balloon payment.
The calculator above follows that structure. Enter the loan amount, the rate, the amortization period and when the balloon is due. It returns the monthly payment, the balloon, total interest over the term and a year-by-year schedule. Add the property value and net operating income and it also shows loan-to-value and debt service coverage, the two ratios almost every commercial lender underwrites to.
L = loan amount · r = annual rate ÷ 12 · n = amortization in months
If the loan starts with an interest-only period, the payment during that period is simply the balance times the monthly rate. Amortizing payments begin afterwards, so less principal is paid down and the balloon is larger.
Why commercial loans have a balloon
Lenders don’t want to commit to a fixed rate on a commercial property for 25 years. A shorter term lets them reprice the loan, re-check the property’s income and get their money back if the market changes. Borrowers get a payment that is affordable because it is spread over a long amortization. The trade-off is that the remaining balance has to be paid off, usually by refinancing or selling, when the term ends.
Very few owners pay a balloon in cash. In practice the balloon date is a refinance date, and the terms available on that day depend on the rate market and on the property’s value and income at that point.
Worked example
Take a $1,500,000 loan at 7.25% with a 25-year amortization and a 10-year term:
- Monthly payment: $10,842.10
- Total of 120 payments: $1,301,052, of which $988,756 is interest
- Principal paid down over 10 years: $312,297
- Balloon due at year 10: $1,187,703, about 79.2% of the original loan
With 24 months of interest-only at the start, the payment is $9,062.50 for the first two years, then $10,842.10. The balloon rises to $1,269,386. For comparison, paying the same loan off over the full 25 years would cost $3,252,631 in total payments.
Typical commercial loan terms
| Loan type | Term | Amortization | Max LTV |
|---|---|---|---|
| Bank or credit union | 5–10 years | 20–25 years | 65–80% |
| CMBS (conduit) | 5–10 years | 25–30 years, often partial interest-only | 65–75% |
| Life company | 5–25 years | 25–30 years | 50–65% |
| SBA 504 / 7(a) | 10–25 years | 20–25 years | Up to 85–90% (owner-occupied) |
| Bridge or private | 1–3 years | Usually interest-only | 65–80% |
| DSCR investor loans | 30 years (some 5–10 year balloon) | 30 years | Up to 75–80% |
These ranges are typical, not guarantees. Property type matters a lot: multifamily and industrial get the best terms, while hospitality, special-purpose and vacant properties get lower leverage and higher rates.
LTV and DSCR: what lenders check
Loan-to-value (LTV) is the loan divided by the appraised value. A $1,500,000 loan on a $2,200,000 property is 68.2% LTV.
Debt service coverage ratio (DSCR) is net operating income divided by the annual loan payments. Most lenders want at least 1.20x to 1.25x, meaning income is 20–25% higher than the mortgage payments. With $165,000 of NOI, the example loan above has a DSCR of 1.27x.
The lender will lend the lower of the two limits. If you want to see how much you could borrow, the commercial loan amount calculator runs both tests at once, and the DSCR calculator builds NOI from rents and expenses.
What to do before the balloon
Start the refinance six to nine months before the maturity date. An appraisal, environmental report and underwriting can take 45–90 days, and extensions on a maturing loan are expensive when the lender agrees to them at all. If rates have risen since you closed, run the new numbers early: a higher rate can push DSCR below the lender’s minimum and shrink the loan you qualify for. The commercial refinance calculator compares your current loan with a new one, and the cash-out refinance calculator shows how much equity you could take out at the same time.