Commercial Mortgage Calculator: Payment, DSCR, and the Balloon Due at Term End

Why a commercial mortgage payment isn't calculated like a home loan

A residential mortgage qualifies you on personal income and a debt-to-income ratio. A commercial mortgage instead qualifies the property (or the business) on debt service coverage ratio: the income the property or business generates, divided by the annual loan payment. Lenders care whether the asset can pay for itself, not primarily whether your paycheck can.

This also means the loan terms differ. Commercial mortgages commonly carry a 20- to 25-year amortization schedule but only a 5- to 10-year loan term, so the loan is not fully paid off when the term ends.

The payment: amortization can run longer than the loan term

Your monthly principal-and-interest payment is calculated over the full amortization period, even though you'll owe a payoff before that period is finished. Take a $600,000 loan at 7.25% amortized over 20 years (240 months). The monthly payment is $4,742.26.

That payment is calculated as if the loan runs the full 20 years. But if the loan's term is only 10 years, you are not done paying at month 240 — you're due for a full payoff, or a refinance, at month 120.

The balloon payment due at year 10

A balloon payment is the remaining loan balance still owed when the term ends, even though the amortization schedule assumed a longer payoff. Continuing the example above — a $600,000 loan at 7.25%, 20-year amortization, 10-year term — the balance remaining after 120 payments of $4,742.26 is $403,936.

That $403,936 is due in full at month 120. Borrowers typically refinance into a new commercial mortgage or sell the property before that date; failing to arrange either one means default. Build the balloon date into your planning calendar the day you close, not the year before it's due.

DSCR: the number that actually decides your loan

Debt service coverage ratio equals net operating income divided by annual debt service (your total yearly loan payment). On the $600,000 loan above, annual debt service is $4,742.26 × 12 = $56,907.

The U.S. Small Business Administration requires a minimum DSCR of 1.15 on 7(a) loans over $350,000, meaning net operating income must be at least $56,907 × 1.15 = $65,443 to qualify. Many conventional bank and commercial real estate lenders set the bar higher, often 1.25, which on this loan means $71,134 in net operating income. A DSCR below 1.0 means the property's income doesn't even cover the loan payment — an automatic decline at almost any lender.

SBA loans vs. conventional commercial mortgages

An SBA 7(a) or 504 loan can offer a lower down payment and longer amortization than many conventional commercial lenders, but it comes with more paperwork and a guarantee fee.

| | SBA 7(a)/504 | Conventional commercial | |---|---|---| | Typical down payment | 10–15% | 20–30% | | Minimum DSCR | 1.15 (loans over $350k) | Often 1.25+ | | Amortization | Up to 25 years | Often 20–25 years | | Balloon risk | Lower (longer terms available) | Common at 5–10 year terms | | Speed to close | Slower (more documentation) | Often faster |

SBA financing tends to fit owner-occupied properties and businesses that can't meet a conventional lender's DSCR bar; conventional loans tend to close faster for straightforward income-property deals. Run the numbers on both before committing.

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