Commercial Loan Calculator – The Payment Is Small Because the Balloon Is Not
A commercial property loan runs on two clocks at once: payments sized by a long amortization — often 25 years — but a term that ends far sooner, with everything still owed falling due in one balloon payment. This calculator shows both clocks: the monthly payment, the balloon waiting at the end of the term, and the debt-service coverage ratio (DSCR) the lender will judge the deal by. It is underwriting arithmetic, not a home mortgage with a bigger number.
The deal, as the lender sees it
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Two clocks, one loan
The full picture
What this means
The payment of $7,067.79 a month looks gentle because it is priced off a 25-year schedule — but the loan only runs for 10 of those years. Across 120 payments totalling $848,135.04, just $213,666.04 is principal: at the end of year 10 you still owe $786,333.96, and it falls due at once, as a balloon, to be paid, refinanced or settled by selling the property. On coverage, the property’s $110,000 of net operating income against $84,813.50 of annual debt service gives a DSCR of 1.30×, which clears the 1.25 floor most commercial lenders underwrite to — with about 30 cents of income standing behind every dollar of payment, not the wide margin the low payment seems to promise.
The balloon is the real deadline. Refinancing it in year 10 is a bet on three things at once: rates being workable, the property’s income and value holding up, and a lender wanting the deal — in the same season, a decade from now. The borrowers who handle balloons well are the ones who start planning the exit years early, and who test this page’s numbers against a weaker NOI than today’s.
- Two clocks run at once: the payment is sized by a 25-year amortization ($7,067.79 a month) but the term ends after 10 years, when the balloon falls due.
- On the default the balloon is $786,333.96 — 78.6% of the loan still owed after 120 payments, because the early years repay very little principal.
- DSCR is the lender’s judgement: 1.30× clears the typical 1.25 floor, but a 10% dip in NOI would put it near 1.17×, under the floor.
- Two clocks: the payment’s horizon and the debt’s
- How it works, in 3 steps
- How each figure is worked out
- Deep dives
- The term is the balloon: 5, 10 and 15 years on the same loan
- Stretching the amortization: a lower payment, a larger balloon
- Coverage under stress: what the DSCR ladder says
- What this page leaves out, and why the lender’s NOI differs
- The balloon’s three exits, decided in advance
- Commercial loan questions, answered
Two clocks: the payment’s horizon and the debt’s
The pale bar is the schedule your payment is calculated on. The dark bar is how long you actually have. Where the dark bar stops, whatever is left comes due in a single payment.
Debt-service coverage ratio (DSCR)
At 1.30×, this deal clears the 1.25 floor most commercial lenders underwrite to — coverage is adequate, not roomy. A 10% dip in NOI would put it at about 1.17×, under the floor, which is exactly the stress a lender will apply.
Why the payment feels so manageable: it is a 25-year payment on a 10-year debt. The difference between the two clocks does not vanish — it collects itself into the balloon, with interest charged on the slowly-falling balance the whole way there.
Cap Rate Calculator
Where the NOI in this page comes from — the property’s income, worked out properly.
🏠Mortgage Calculator
The residential cousin: one clock, no balloon, the balance gone by the last payment.
🎈Interest Only Loan Calculator
The extreme version of a slow start — nothing repaid at all until the period ends.
How it works, in 3 steps
Enter both horizons
Amount, rate, the amortization period the payment is spread over, and the shorter term after which the debt is due. Both figures are printed in any commercial term sheet — and if a quote only mentions one of them, ask for the other before you compare anything.
Read the balloon before the payment
The payment is the number the deal is sold on; the balloon is the number the deal ends on. Check what share of the loan is still owed at term end, and ask honestly where that money comes from on that date — cash, a refinance, or a sale you are genuinely willing to make.
Run the lender’s test
Add the property’s net operating income and read the DSCR. Below 1.00 the property does not cover its own payments. Most lenders want 1.25 or better, on their version of NOI — which is usually more conservative than yours. If the deal only works at 1.10, it does not yet work.
How each figure is worked out
The payment, worked through. Borrow $1,000,000 at 7% on a 25-year amortization and the monthly rate is 0.07 ÷ 12. The payment is 1,000,000 × 0.0058333 ÷ (1 − 1.0058333−300) = $7,067.79 a month, or $84,813.50 a year of debt service. Note what the formula never asks: when the loan is actually due. The term does not change the payment by a cent — it changes what is left when the music stops.
The balloon, worked through. After 120 of the 300 payments, the balance is $786,333.96 — checked two ways on this page: by running the balance forward payment by payment, and by discounting the 180 remaining payments back to today. Both give the same figure to the cent, because they are the same fact stated twice. Of the $848,135.04 paid across the term, only $213,666.04 was principal; the other $634,469.00 was interest on a balance that spent a decade barely moving.
The coverage, worked through. With NOI of $110,000: 110,000 ÷ 84,813.50 = 1.30×. The NOI that would land exactly on the common 1.25 lender floor is 84,813.50 × 1.25 = $106,016.88 — so this property clears the floor by under $4,000 of income a year. That is a thin cushion, and it is why lenders stress-test NOI rather than accepting the current year’s figure at face value.
A second example. $500,000 at 6.5%, a 20-year amortization and a 5-year term: the payment is $3,727.87 a month, the balloon at year 5 is $427,945.60, and with NOI of $60,000 the DSCR is 1.34×. Shorter terms repay a smaller share before the balloon — here just 14.4% of the principal in five years.
Deep dives
Every commercial balloon loan contains an appointment its borrower must keep years in advance. On the default example, $786,333.96 falls due on a single date at the end of year 10. Almost nobody pays that from cash flow — the standard exits are a refinance or a sale, and both depend on conditions the borrower does not control: the rate environment that year, the property’s income and value at that moment, and lender appetite for the asset class, all arriving together.
This is the structural difference from a residential mortgage. A home loan’s amortization and term are the same clock: make the last payment and the debt is simply gone. A commercial loan deliberately splits the clocks so the payment stays low and the property’s income can carry it — in exchange for refinancing risk being handed, in full, to the borrower. The 2008–2012 wave of commercial defaults was, in large part, good properties with performing loans whose balloons landed in a market where no refinance existed at any rate.
The practical defences are boring and effective: negotiate the longest term on offer even at a slightly higher rate, because time is the one hedge that always pays; keep the DSCR comfortably above the floor so a future lender sees a deal that still works under stress; and start the refinance conversation a full two years before the balloon, while a “no” still leaves time for a sale on your terms rather than the calendar’s.
A commercial lender is not really lending to you — they are lending to the property’s income, with you as its manager. That is why the debt-service coverage ratio, and not your salary, decides the loan. DSCR divides the property’s net operating income by the year’s debt service: 1.00 means the property exactly covers its payments and nothing else — no repairs, no vacancy, no surprises — which is why most lenders set their floor at 1.20–1.25 and prefer 1.35 or more for riskier property types.
Two borrowers can compute two different DSCRs for the same building, and the lender’s is the one that counts. Lenders rebuild NOI conservatively: they subtract a vacancy allowance even on a fully-let property, charge management fees even if you manage it yourself, reserve for capital items the owner’s figures leave out, and often cap how much of a recent rent increase they will credit. Each haircut lowers NOI and therefore DSCR. If your own generous NOI produces 1.30, assume the lender’s version lands nearer 1.20 — and size the loan so the deal still works there.
That is also the honest way to use this page. Run it first with your figures, then run it again with NOI trimmed by 10–15% and the rate a point higher. A deal that still clears 1.25 under that stress is a deal. A deal that only works at today’s exact numbers is a hope — and balloons, as the first deep dive explains, are unkind to hopes.
The term is the balloon: 5, 10 and 15 years on the same loan
The monthly payment never changes when the term changes — it is priced off the 25-year amortization, and the term does not enter the payment formula at all. What the term decides is how much of the loan is still standing when it ends. All three rows below were run through this page’s calculator on the default $1,000,000 loan at 7% on a 25-year amortization.
| Term | Monthly payment | Balloon due | Share still owed | Principal repaid |
|---|---|---|---|---|
| 5 years | $7,067.79 | $911,621.52 | 91.2% | $88,378.48 (8.8%) |
| 10 years | $7,067.79 | $786,333.96 | 78.6% | $213,666.04 (21.4%) |
| 15 years | $7,067.79 | $608,723.15 | 60.9% | $391,276.85 (39.1%) |
The shape of the table is the shape of amortization itself: early payments are mostly interest, so the balance falls slowly at first and faster later. Five years of payments repay only $88,378.48 of principal, leaving 91.2% of the loan to fall due at once. The next five years repay a further $125,287.56, and the five after that repay $177,610.81 — each five-year block repays more than the one before, because each payment’s interest share shrinks as the balance falls. A borrower who negotiates a 15-year term instead of a 5-year term does not merely postpone the balloon; the borrower shrinks it by more than $300,000, from $911,621.52 to $608,723.15, on the same payment.
That is why the page’s deep dive calls the longest term on offer the one hedge that always pays, even at a slightly higher rate. Time is the only input that attacks the balloon from both sides: it gives the balance more payments to fall, and it gives the later payments a smaller balance to carry. A term negotiated in haste — the shortest the lender offered, accepted for a marginally lower payment — is the most expensive line in the whole term sheet, because it is paid in a single balloon rather than spread across monthly bills.
Stretching the amortization: a lower payment, a larger balloon
If the term is fixed at ten years, the amortization is the dial that trades payment against balloon. All three rows below were run through this page’s calculator on the default $1,000,000 loan at 7% with a 10-year term.
| Amortization | Monthly payment | Annual debt service | Balloon at year 10 | Principal repaid |
|---|---|---|---|---|
| 20 years | $7,752.99 | $93,035.87 | $667,736.71 | $332,263.29 (33.2%) |
| 25 years | $7,067.79 | $84,813.50 | $786,333.96 | $213,666.04 (21.4%) |
| 30 years | $6,653.02 | $79,836.30 | $858,123.83 | $141,876.17 (14.2%) |
Stretching the amortization from 20 years to 30 years cuts the monthly payment by $1,099.97 — from $7,752.99 to $6,653.02 — which is exactly why borrowers ask for it: the property’s rent carries the payment more easily, and the coverage ratio improves on the same income. But the balloon grows by $190,387.12, from $667,736.71 to $858,123.83, because the longer schedule repays principal more slowly in every year of the term. The borrower has not borrowed less, and has not paid less in total; the borrower has moved $190,387 of repayment from the term’s monthly bills into its final day.
The trade is legitimate, and it is the product itself: a manageable payment now in exchange for a larger refinancing or sale later. What makes it dangerous is judging it on the payment alone, which is the number the deal is sold on. The page’s own guide insists on reading the balloon before the payment, and this table is why: the 30-year amortization’s payment looks $414.77 a month gentler than the 25-year version’s, while its balloon is $71,789.87 larger. Both numbers are true, and a borrower who has only seen the first has only seen half the loan.
Coverage under stress: what the DSCR ladder says
The payment and the balloon describe the loan; the coverage ratio describes whether the property can carry it. The page’s own scale reads 1.00 as break-even, 1.25 as the typical lender floor, and 1.50 as strong coverage, and the default deal sits at 1.30× — adequate, in the page’s own words, not roomy. The ladder below moves only the NOI, holding debt service at the default $84,813.50 a year.
| NOI | DSCR | Reading on the page’s scale |
|---|---|---|
| $99,000 (10% below default) | 1.17× | Below the 1.25 floor |
| $106,016.88 (floor NOI) | 1.25× | Exactly on the typical floor |
| $110,000 (default) | 1.30× | Adequate, not roomy |
| $130,000 | 1.53× | Strong coverage |
The 10% dip row is the one lenders actually underwrite to, in spirit if not in arithmetic: a property whose income falls a tenth, through vacancy, a lost tenant or a rising bill, drops from 1.30× to 1.17×, under the floor it cleared at signing. That fragility is not a defect in this particular deal; it is the nature of a 1.30× deal, and it is why the page’s guide warns that a deal which only works at 1.10 does not yet work. The distance from the floor matters more than the clearance itself, because income moves and the floor does not.
The floor NOI row quantifies the cushion in dollars rather than ratios: $106,016.88 of NOI lands exactly on 1.25×, so the default deal’s cushion above the floor is only $3,983.12 of annual income — about $332 a month of rent or expense movement. The $130,000 row shows what a genuinely comfortable deal looks like: at 1.53× the property could lose more than $20,000 of NOI before touching the floor, and a future lender refinancing the balloon sees a deal with room rather than a deal at its limit. Coverage, like the balloon, should be read as a margin, not a pass mark.
What this page leaves out, and why the lender’s NOI differs
The calculator prices the loan as written: amount, rate, amortization, term and the NOI entered. Several real items sit outside it, and the most important is not a missing input but a different definition of the input itself.
Lenders underwrite to their version of NOI, which the page’s guide warns is usually more conservative than the borrower’s. A borrower’s NOI may count every dollar of rent at full occupancy and every expense at its lowest recent year; a lender’s version typically haircuts the rent for vacancy and management, normalises expenses, and may exclude income it regards as non-recurring. The same property can therefore show 1.30× on this page and a lower figure in the lender’s model, and the deal that clears the floor here may not clear it there. The honest use of this calculator is to test the deal against the lender’s NOI as well as your own: enter the conservative income, read the coverage, and negotiate from the lower figure.
Fees, reserves, prepayment terms, rate resets and tax are likewise outside the model, and each can move the real cost. Origination and closing fees raise the cash needed at signing without changing the payment; lender-required reserves tie up cash that the coverage ratio counts as available; a rate that resets during the term changes the payment the balloon is computed from; and tax treatment changes the after-tax return without touching any figure on this page. No market rate, fee schedule or lender policy is quoted here, because those vary by lender, property and date, and a single invented figure would mislead more than it informed. Price the loan’s structure here, and price its terms with the actual term sheet in hand.
The balloon’s three exits, decided in advance
Every balloon loan ends the same way — a large sum falling due on a single date — but only three exits exist, and each one should be chosen before signing, not discovered at term end. The default figures anchor all three: a $786,333.96 balloon after ten years, $848,135.04 paid across the term, $213,666.04 of it principal.
The first exit is refinancing: borrowing anew to clear the balloon, on whatever terms the market offers in year ten. It works when the property’s income still covers a new loan comfortably and rates and lender appetite cooperate; it fails when any of those three legs fails, as the page’s deep dive warns about the 2008–2012 wave, when good properties with performing loans found no refinance at any rate. A borrower counting on this exit should ask, at signing, what the deal looks like if refinancing is available only at a higher rate or a lower loan amount — and whether the property’s income still carries it then.
The second exit is a sale: selling the property for enough to clear the balloon plus selling costs, and keeping or returning whatever remains. On the default, the sale must clear $786,333.96 before a cent returns to the borrower, and selling costs sit on top of that figure, whatever they are in that market at that time. A sale exit therefore needs the property’s value to hold above the balloon, not merely to hold steady in general: a property worth $800,000 at term end barely clears a $786,333.96 balloon after costs, while the same property at $700,000 leaves a shortfall the borrower must fund from elsewhere. Value at term end, not value today, is the number this exit depends on.
The third exit is paying from cash: accumulating, during the term, enough outside the property to meet the balloon outright. It is the least common exit for a balloon of this size — $786,333.96 is rarely sitting idle — but it is the only one that does not depend on a market, a lender or a buyer in year ten. Partial prepayments during the term, where the contract allows them, are a slower version of the same exit: every dollar of principal repaid early is a dollar the balloon no longer contains, though this calculator models the loan as written and does not price prepayments, so their effect must be checked against the loan agreement rather than read from this page. Whichever exit is chosen, the discipline is the same: name it at signing, test it against a bad year-ten market, and revisit it annually, while the balloon is still a figure on a page rather than a demand in the post.
The lender checklist beyond DSCR: LTV, debt yield, reserves, and guarantors
DSCR is the first test a commercial lender applies, and it is not the only one. The rest of the checklist decides the same loan.
Loan to value, LTV, compares the loan amount with the appraised value of the property: a lower LTV means more equity beneath the loan, and more cushion if the value falls, so lenders set a maximum LTV and lend only within it, with the borrower covering the rest in equity. Debt yield divides the net operating income by the loan amount, and it measures the same cushion from the income side rather than the value side: it asks what return the property income alone gives on the loan, without any assumption about the interest rate, which is why lenders use it alongside DSCR, because DSCR moves with the rate while debt yield does not. A loan can pass the 1.25 DSCR floor this page uses and still fail on LTV or on debt yield, and a loan can pass all three and still fail on the borrower.
Reserves and guarantors are the borrower side of the checklist. Lenders want evidence of cash reserves, held back for payments, for capital expenditure, and for the leasing and tenant-improvement costs that arrive between tenants, because a property that cannot fund its own gaps is a loan that will ask the lender for patience at the worst moment. A guarantor, usually a principal of the borrowing entity, adds a personal promise behind the loan, and the strength of that promise, the guarantor assets, income, and credit, is underwritten as part of the loan, with recourse, partial recourse, and non-recourse structures allocating who bears the loss if the property fails. None of these tests is computed on this page, which prices the payment, the balloon, and the DSCR; they are stated here so that a borrower who passes the calculator does not mistake a passing DSCR for an approved loan. The companion guide explains the rates, the terms, and how the payments work, from the same payment arithmetic this page uses.
Commercial loan questions, answered
What is a commercial loan?
A commercial loan is borrowing secured on business property — an office, a shop, a warehouse, apartments held as an investment — rather than on the home you live in. Lenders underwrite it mainly on the property’s own income, not the borrower’s salary, and the structure is different from a home loan: a shorter term, a longer amortization, and usually a balloon payment at the end. Small businesses also meet the same structure in SBA 7(a) and 504 loans, though SBA loans often amortize fully over 25 years with no balloon.
Why is the amortization longer than the term?
Because spreading payments over 25 years keeps each payment low enough for the property’s rent to carry — while the lender only commits its money for 5 or 10 of those years. The mismatch is the product: a manageable payment now, in exchange for the remaining balance falling due at the term’s end. On this page’s default example, payments sized for 25 years leave $786,333.96 of a $1,000,000 loan still owed after 10.
How is the balloon payment calculated?
The balloon is simply the loan balance on the day the term ends — what would still be owed if the amortization kept running. It can be worked out two equivalent ways: run the balance forward payment by payment, or discount the remaining scheduled payments back to that date. On the default example both give $786,333.96. Nothing about it is a penalty or a fee; it is the untouched remainder of the original debt, arriving on a schedule everyone agreed at signing.
What is DSCR, and what do lenders look for?
The debt-service coverage ratio divides the property’s net operating income by the year’s total loan payments. A DSCR of 1.30× means the property earns 1.3 dollars for every dollar of debt service. Most commercial lenders set their floor at 1.20–1.25×, because at exactly 1.00 the property covers its payments and nothing else — no vacancy, no repairs, no cushion. Lenders also compute NOI their own conservative way, so the DSCR they see is usually lower than the owner’s.
What happens when the term ends and the balloon is due?
Three exits exist: pay it (rare, at these sizes), sell the property and settle from the proceeds, or refinance into a new loan — the usual plan. Refinancing is never guaranteed: it depends on rates, the property’s income and value, and lender appetite at that future date. Borrowers who fare best start the refinance a year or two early and keep coverage strong, so the property still qualifies if conditions tighten.
How is a commercial loan different from a home mortgage?
In almost every structural way. A home mortgage’s term and amortization are the same, so the debt dies with the last payment; a commercial loan splits them and ends in a balloon. Commercial rates are usually higher, terms shorter, and lenders judge the property’s income (through DSCR) rather than the borrower’s payslips. Commercial loans may also carry prepayment penalties — yield maintenance or defeasance — that home loans rarely have, and the borrower’s business, and often the borrower personally, guarantees the debt.
How big is the balloon after only 5 years?
$911,621.52 — 91.2% of the $1,000,000 loan still owed, after 60 payments of $7,067.79. Only $88,378.48 of principal is repaid in five years on a 25-year amortization, because early payments are mostly interest. Extend the term to 10 years and the balloon falls to $786,333.96; extend it to 15 and it falls to $608,723.15. The term is the balloon, more than any other single input.
Does a longer amortization lower my total cost?
No — it lowers the monthly payment and raises the balloon. On the default loan with a 10-year term, stretching the amortization from 20 years to 30 years cuts the payment from $7,752.99 to $6,653.02 a month, but grows the balloon from $667,736.71 to $858,123.83, a difference of $190,387.12 moved from the term’s monthly bills into its final day. The longer schedule does not reduce what is borrowed; it postpones repaying it.
How much income do I need to clear the 1.25 lender floor?
$106,016.88 a year of NOI, against the default debt service of $84,813.50 — because $84,813.50 × 1.25 = $106,016.88. The default NOI of $110,000 clears that floor by only $3,983.12 a year, about $332 a month, which is why the page calls 1.30× adequate rather than roomy. A 10% dip in NOI, to $99,000, would drop coverage to 1.17×, under the floor entirely.
Why might my lender’s DSCR differ from this page’s?
Because lenders underwrite to their own, usually more conservative version of NOI: rent haircut for vacancy and management, expenses normalised, non-recurring income excluded. The same property can show 1.30× here and a lower figure in the lender’s model, and the deal that clears the floor on this page may not clear it there. Test the deal against the conservative income as well as your own, and negotiate from the lower figure.
What is debt yield and why do lenders use it?
Debt yield is net operating income divided by the loan amount. It measures the cushion on the loan from the income side, asking what return the property income alone gives on the loan, without any assumption about the interest rate. Lenders use it alongside DSCR because DSCR moves with the rate while debt yield does not, so a loan that passes DSCR only because the rate is low can still fail on debt yield, and the two tests together catch what either alone would miss.
What does a guarantor add to a commercial loan?
A personal promise behind the loan, usually from a principal of the borrowing entity, with the guarantor assets, income, and credit underwritten as part of the loan. Recourse, partial recourse, and non-recourse structures allocate who bears the loss if the property fails, and the guarantor strength can decide a loan that the property alone would not carry. A guarantee is a real liability for the guarantor, and it should be read as one before it is signed, not as a formality.
What reserves do lenders want to see?
Evidence of cash held back for payments, for capital expenditure, and for the leasing and tenant-improvement costs that arrive between tenants. A property that cannot fund its own gaps is a loan that will ask the lender for patience at the worst moment, so reserves are underwritten as part of the loan, with the amount judged against the property, the tenancy, and the loan. The reserve position is part of the borrower assessment, alongside the property tests, and it is worth assembling before the application, not during it.
Related calculators
Cap Rate Calculator
Where the NOI in this page comes from — the property’s income, worked out properly.
🏠Mortgage Calculator
The residential cousin: one clock, no balloon, the balance gone by the last payment.
🎈Interest Only Loan Calculator
The extreme version of a slow start — nothing repaid at all until the period ends.
🔑Down Payment Calculator
The cash a purchase needs up front — commercial deals usually ask for 20–35% down.
📅Amortization Calculator
Month-by-month schedules behind the payment and the balance curve on this page.
🏢Commercial Mortgages Explained
Rates, terms, and how payments work.
Clean arithmetic, not a quote — and not financial advice.
This calculator assumes one fixed rate for the whole term, the scheduled payment every month, and no taxes, insurance, fees or prepayments. Real commercial loans are often adjustable-rate, may carry prepayment penalties such as yield maintenance or defeasance, and are underwritten on the lender’s own version of net operating income — usually more conservative than the borrower’s, with vacancy allowances and reserves the owner’s figures may not show. SBA loans follow their own programme rules. The structure, though, never changes: a payment priced on a long schedule, and a balance that comes due on a shorter one. Test your actual term sheet here, stress it with weaker income and a higher rate, and take the figures to a qualified adviser before you sign.