Commercial Real Estate Calculator
Balloon, DSCR, cash-on-cash.
Most commercial mortgages are 5/25 or 7/25 — amortized over 25 years but balloon at year 5 or 7. We compute the monthly payment, the balloon owed at maturity, your DSCR (annual NOI ÷ debt service), and cash-on-cash return.
Why Commercial Mortgages Balloon
Lenders don't want to commit to a 25-year fixed rate on a single building, so they amortize the loan over 25 years (lower monthly) but require the entire remaining balance at year 5, 7, or 10. At maturity you must refinance or pay the balance in cash. If rates have risen or property values have fallen, refinancing can fail — which is why commercial-property values track interest rates very tightly.
DSCR — The Most Important Number
Debt service coverage ratio = annual net operating income / annual debt service. Lenders use it to decide whether the property's cash flow covers the loan payment with cushion to spare.
- ≥ 1.25: bank standard for stabilized property
- 1.10 – 1.24: borderline; lender may require recourse or higher down payment
- < 1.10: declined or repriced 2–4 points higher
Cash-on-Cash Return
Cash-on-cash return = (annual NOI − annual debt service) / cash invested. It's the unlevered yield on your equity. 8–12% is typical for stabilized commercial in good markets. Below 6%, you're generally banking on appreciation rather than yield.
The Refinance Cliff
Plan for the balloon. At year 7, you'll owe roughly 80% of the original loan (because 25-year amortization barely touches principal early on). Have a refinance plan in place 12–18 months before maturity. If rates have risen, you may need to inject more equity to maintain LTV.
Worked Example
$1.2M property, 25% down ($300k), 7.85% rate, 25-year amortization, 7-year balloon, $115k NOI:
- Monthly P&I: $6,841
- Balloon at year 7: ~$770,000 (80% of original $900k loan)
- DSCR: 115,000 / 82,092 = 1.40 — comfortable for bank financing
- Cash-on-cash: ($115k − $82k) / $300k = 11.0%