Commercial Mortgage

A commercial mortgage is underwritten on a different set of metrics than a residential loan. Set the property income once, then model three loan structures side by side — each with its own LTV, rate, term and amortization — and compare them on the figures a credit committee actually tests.

✓NOI and cap rate — shared across all three structures, so the comparison isolates the financing rather than the asset.

✓DSCR and debt yield — coverage computed against NOI and flagged against the 1.25× minimum, with debt yield alongside since many lenders size on it instead.

✓LTV, balloon and true cost — interest-only and amortizing structures, with the balloon at maturity carried into total cost rather than left out of it.

✓Break-even occupancy — operating expenses plus debt service against gross potential rent — how empty the building can get before it stops covering itself.

DSCRLTVDebt yieldCap rateBalloonAmortizationIO period

What lenders test

1.25×Minimum DSCR

65–75%Typical LTV

9–11%Debt yield floor

3Structures compared

Sized on whichever binds first

LTVLoan capped as a share of appraised value

DSCRPayment capped by the income the property produces

YieldLoan capped so NOI clears the lender's debt yield

Property value

$5.00M

$500K$50M

Annual NOI

$280K

$10K$3M

Vacancy rate

0%40%

Cap rate

5.60%

NOI ÷ value

Implied gross rent

$295K

NOI ÷ (1 − vacancy) · not EGI

Property type

Tranche A

★ Best

Loan type

Loan-to-Value (LTV)65% · $3.25M

30%90%

Interest rate6.50%

2%18%

Loan term10 yr

1 yr30 yr

Amortization

Capital Stack

Equity 35%

Debt 65% LTV

0%50%100%

DSCR1.14×

⚠ Below preferred 1.25× threshold — renegotiate terms

Loan Summary

Loan amount$3.25M

Equity required$1.75M

Monthly payment$20,542

Annual debt service$246,507

Total interest cost$1.97M

Balloon at maturity$2.76M

Debt yield8.62%

Break-even occupancy88.0%

Tranche B

Loan type

Loan-to-Value (LTV)75% · $3.75M

30%90%

Interest rate8.50%

2%18%

Loan term5 yr

1 yr30 yr

Amortization

Capital Stack

Equity 25%

Debt 75% LTV

0%50%100%

DSCR0.88×

✗ Cash flow negative — debt service exceeds NOI

Loan Summary

Loan amount$3.75M

Equity required$1.25M

Monthly payment$26,563

Annual debt service$318,750

Total interest cost$1.59M

Balloon at maturity$3.75M

Debt yield7.47%

Break-even occupancy99.0%

Tranche C

Loan type

Loan-to-Value (LTV)80% · $4.00M

30%90%

Interest rate9.25%

2%18%

Loan term3 yr

1 yr30 yr

Amortization

Capital Stack

Equity 20%

Debt 80% LTV

0%50%100%

DSCR0.71×

✗ Cash flow negative — debt service exceeds NOI

Loan Summary

Loan amount$4.00M

Equity required$1.00M

Monthly payment$32,907

Annual debt service$394,884

Total interest cost$1.10M

Balloon at maturity$3.91M

Debt yield7.00%

Break-even occupancy99.0%

Every metric a CRE lenderwill ask for, computed.

Every metric a CRE lender
will ask for, computed.