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How to Calculate Commercial Real Estate Loan Payments

A commercial real estate loan payment comes down to four inputs: the loan amount, the interest rate, the amortization period, and the loan term. Change any one of these and the payment changes with it. The tricky part is that amortization and loan term are usually two different numbers, and understanding why is the key to understanding your actual annual debt service, including whether you'll owe a balloon payment when the loan matures.

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Why Amortization and Loan Term Are Usually Different Numbers

On a typical home mortgage, amortization and term are the same number. A 30-year mortgage is amortized over 30 years and matures in 30 years. Commercial loans rarely work that way.

A commercial lender might offer a loan with a 25 or 30-year amortization schedule, but a loan term of only 5 or 10 years. The amortization period is used purely to calculate what the payment should be. The loan term is when the loan actually matures and the remaining balance comes due.

This gap exists because commercial lenders don't want to lock up capital in a fixed-rate loan for decades. Spreading the payment schedule over a longer amortization period keeps the annual debt service manageable for the borrower, while the shorter term lets the lender revisit the loan, and often reprice it, well before it's fully paid off.

How the Annual Payment Is Calculated

Commercial loans compound and pay monthly, so the payment is technically calculated on a monthly basis first. But for underwriting purposes, what matters is the annual debt service, since that's the number NOI has to cover for a deal to work. Annual debt service is simply the monthly payment multiplied by 12. That same annual debt service is also what you subtract from NOI to get the cash flow behind cash-on-cash return.

Early payments in the schedule are weighted heavily toward interest, since interest is charged on the full outstanding balance. As the balance shrinks, less of each payment goes to interest and more goes to paying down principal. By the end of the amortization schedule, if the loan actually ran that long, the payment would be almost entirely principal.

Example: A $1,500,000 loan at 6.75% interest, amortized over 25 years, produces a monthly principal and interest payment of roughly $10,364, or about $124,368 in annual debt service. That figure stays the same every year for as long as the loan amortizes, but how much of it goes to principal versus interest shifts over time.

How to Calculate Loan Payment in Excel

Excel's PMT function calculates the monthly payment for you, so you don't have to build the amortization math from scratch. Since commercial loans compound monthly, PMT is built around monthly inputs even when you want an annual result.

Rate: The monthly interest rate, which is the annual rate divided by 12
Nper: The total number of payments, which is the amortization period in years multiplied by 12
Pv: The loan amount, entered as a negative number, since it represents money going out from the lender's side of the transaction

Example: For the $1,500,000 loan at 6.75%, amortized over 25 years, the formula reads =PMT(6.75%/12, 25*12, -1500000). That returns the same $10,364 monthly payment shown above. To get annual debt service, multiply the result by 12.

One common mistake: entering the loan amount as a positive number returns a negative payment. That's not a formula error, it's just how Excel signs cash flows, but it makes the result harder to read on a spreadsheet. Entering the loan amount as negative keeps the output positive and readable.

PMT only returns the payment amount. Getting a full year-by-year breakdown of principal and interest, with a running balance, takes a separate amortization table built out below it.

Interest-Only Periods

Some commercial loans include an interest-only period at the start of the loan, where the borrower pays only the interest charge each year and no principal. Since the loan balance doesn't decrease during this period, the annual interest-only payment is simply the loan amount multiplied by the interest rate.

Example: On that same $1,500,000 loan at 6.75%, an annual interest-only payment would be $101,250, compared to the $124,368 full annual debt service once the loan starts amortizing. Once the interest-only period ends, the payment steps up, and the amortization clock effectively starts from the original loan amount, since none of it was paid down during the IO period.

Interest-only periods are common on bridge loans, construction loans, and value-add acquisitions where cash flow is tight in the early hold period.

Balloon Payments

When the loan term is shorter than the amortization period, whatever principal balance remains at the end of the term is due in one lump sum. This is the balloon payment.

Example: Using the $1,500,000 loan at 6.75%, amortized over 25 years, with a 10-year term, the borrower makes the same $124,368 annual debt service for 10 years. But since the payment schedule was built assuming a 25-year payoff, only a portion of the principal has actually been paid down by year 10. The remaining balance, roughly $1,171,000 in this case, is due as a single balloon payment when the loan matures.

Borrowers typically handle a balloon payment by refinancing the property, selling it, or paying it off with proceeds from a capital event. Because the balloon amount can be substantial, it's worth modeling out what the balance will look like at maturity before signing on a shorter-term loan, not just focusing on the annual debt service. Whether refinancing or selling is realistic at that point comes down to what the property is actually worth when the balloon comes due.

Try the Commercial Loan Calculator

Running these numbers by hand works fine for a single scenario, but it gets tedious fast if you're comparing loan structures or testing how an interest-only period changes your balloon exposure. Our Commercial Loan Calculator handles the full calculation, including the annual amortization schedule, so you can see exactly how a loan structure plays out before you commit to it.