How is a commercial mortgage different from a residential mortgage?

Commercial mortgages are underwritten based on the property's income-generating ability, not the borrower's personal finances. Lenders evaluate cap rate, DSCR, and LTV rather than FICO scores. Loan terms are typically shorter (5–10 years) with amortization over 25–30 years, meaning the loan balloons before it's fully paid off — requiring a refinance or sale at maturity. Interest rates are generally higher than residential and often variable, anchored to SOFR or Prime.

What LTV do commercial lenders typically allow?

Most conventional commercial lenders cap LTV at 65–80% depending on property type and borrower profile. Multifamily typically gets the most favorable terms (up to 80% LTV), while office and retail may be capped at 65–70%. Bridge and CMBS lenders may go higher but at significantly higher rates. SBA 504 loans can reach 90% LTV for owner-occupied commercial real estate.

What is the difference between recourse and non-recourse commercial loans?

A non-recourse loan limits the lender's recovery to the property itself — the borrower is not personally liable if the loan goes into default. A recourse loan allows the lender to pursue the borrower's personal assets to recover losses. Non-recourse is standard for stabilized, income-producing CRE, but lenders typically carve out 'bad boy' exceptions for fraud, misappropriation, or environmental violations. Sponsor recourse is often required for construction or value-add loans.

What is a typical commercial mortgage term and amortization schedule?

The loan term (how long until the loan must be paid off or refinanced) is typically 5, 7, or 10 years for standard CRE. The amortization period (how payments are calculated) is usually 25 or 30 years. This mismatch means most CRE loans have a large 'balloon payment' at maturity — you're not paying the loan down fully over 5–10 years, you're just extending the due date. Knowing both is critical: a 10-year term with 30-year amortization on a $3M loan at 7% produces monthly payments of about $19,925 but only reduces the principal by roughly $310K over 10 years.

How is DSCR calculated for a commercial mortgage?

DSCR (Debt Service Coverage Ratio) = Net Operating Income / Annual Debt Service. Most lenders require a minimum DSCR of 1.20–1.25x, meaning the property must generate at least 20–25% more income than the annual debt payment. A DSCR below 1.0x means the property doesn't cover its debt service from operations alone. The calculator above uses P&I payments only; for a true DSCR, NOI should be entered as it reflects before-debt metrics.

Commercial Mortgage Calculator — P&I, DSCR & Loan Cost

Estimate monthly principal and interest payments, total interest cost, annual debt service, DSCR, LTV ratio, and total loan cost for commercial real estate. All calculations run in your browser — no data is stored or sent until you subscribe.

Commercial Mortgage Calculator

Standard amortizing loan — P&I only. Does not include reserves, TI, or escrow.

Loan Details

Loan Amount ($) Annual Interest Rate (%) Loan Term (years — balloon date) Amortization Period (years — payment calculation basis)

Property & Equity

Property Value ($ — purchase price or appraised value) Down Payment (%)

Optional — DSCR Calculation

Net Operating Income (NOI) ($/year — income after operating expenses, before debt service)

Enter NOI to calculate DSCR. Lenders typically require 1.20–1.25x minimum.

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            Monthly P&I Payment
          

— Annual Debt Service

— Loan-to-Value Ratio

— DSCR

— Total Interest Over Loan Term

— Total Cost of Loan

— Remaining Balance at Loan Term End

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Amortization Schedule (First 12 Months + Annual Summaries)

Period	Payment	Principal	Interest	Balance

Commercial Mortgages vs. Residential Mortgages

Commercial real estate loans are fundamentally different from residential mortgages — the underwriting lens is on the property's income capacity, not the borrower's personal financial profile. A lender evaluating a $4M office loan doesn't care if the sponsor has an 800 FICO; they care that the property generates $480K in NOI, covers debt service at 1.35x, and apps at 65% LTV.

The most important distinction is the balloon structure. Most commercial loans carry terms of 5, 7, or 10 years, amortized over 25–30 years. This means the loan payment is calculated as if you're paying it off over 25–30 years, but the entire remaining balance comes due at the end of year 5, 7, or 10. At maturity, you must refinance, sell, or the loan goes into default. Understanding this math is critical — a 7-year term on a $3M loan at 7% amortizing over 30 years produces monthly payments of ~$19,980, but only ~$372K of principal is paid down over 7 years. The remaining ~$2.63M is due at maturity.

LTV Requirements by Property Type

Commercial lenders apply LTV caps based on perceived risk of the asset class:

Multifamily (5+ units) Up to 80% LTV for conventional loans. FHA insures up to 87% on acquisition, 92% on refinance. Strongest category for leverage.

Office & Industrial Typically 65–75% LTV. Lenders scrutinize occupancy, lease maturities, and tenant credit. Post-COVID office stress has tightened further.

Retail (strip, anchored) 65–75% LTV. Shadow anchor and credit tenant quality drive terms. Non-credit tenants and short WALT create lender resistance.

Warehouse / Distribution 65–75% LTV. E-commerce tailwind has improved lending appetite. Cold storage specifically now commands premium terms.

SBA 504 (owner-occupied) Up to 90% LTV with 50% first mortgage + 40% second mortgage via CDC. Requires owner-occupancy of 51%+ of the property.

Bridge / Short-term 65–80% LTV but at significantly higher rates (SOFR + 400–700 bps). Used for value-add, transitional, or distressed assets.

Recourse vs. Non-Recourse Commercial Loans

The two structures have materially different risk profiles for the borrower:

Non-recourse is the standard for stabilized, income-producing CRE. In a default scenario, the lender's recovery is limited to the property and any collateral — the borrower's personal assets (home, brokerage accounts, other real estate) are protected. This is the "carrot" that makes CRE a viable investment for people who aren't willing to put their entire net worth at risk on a single asset.

However, non-recourse loans are not unconditional. Virtually every non-recourse loan contains "bad boy" carve-outs that convert the loan to full personal recourse if the borrower commits fraud, misappropriates rents, fails to maintain insurance, or causes environmental contamination. Sponsor guarantees are also commonly required for construction financing and high-leverage transactions.

Recourse loans give the lender the right to pursue the borrower's personal assets for any deficiency after foreclosure. This structure is common for construction loans, high-LTV loans, loans on non-stabilized assets, and bridge financing. Recourse loans typically price at lower interest rates because they reduce lender loss severity.

When evaluating a commercial mortgage, read the loan commitment carefully for recourse provisions, yield maintenance or defeasance requirements at prepayment, and cross-collateralization clauses if you're borrowing against multiple assets.

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