A commercial mortgage rate is only one part of the loan’s cost. The loan term, amortization schedule, fees, prepayment terms and recourse also decide what the borrower pays. This guide explains each term, how conventional loans differ from bridge loans, and what changes the price.
Commercial mortgage terms are the conditions of the loan agreed between the lender and the borrower, and they are not the same as the terms of a residential or personal loan.
What is the difference between loan term and amortization?
The loan term is how long the loan runs before it must be repaid. Commercial loans most often have five, seven or ten year terms. Terms of 25 or 30 years, common on residential mortgages, are less likely in commercial lending, and 15 year terms appear only from time to time.
The amortization period is the time it would take to pay off the loan in full, and it is often longer than the term. A loan with a seven year term might be amortized over thirty years, which leaves a balloon payment at the end of the term that must be paid off or refinanced. For more on how lenders set up a loan, read our guide to commercial mortgage structure and requirements.
What fees and prepayment terms apply?
A commercial loan also carries fees on top of the interest. The usual ones are an origination or arrangement fee charged by the lender, a fee for valuing the property, a fee for the broker who arranges the loan, and legal costs.
If you may pay the loan off before it matures, check the prepayment terms, because lenders treat early repayment in different ways. A lockout bars early repayment entirely. An interest guarantee entitles the lender to the interest it expected to earn even if you repay early. A prepayment penalty applies a fee to the balance still outstanding. Defeasance lets you put up other collateral of equal value instead of paying cash. Some loans can also pass to a new borrower through an assumption, which avoids a prepayment penalty.
How do bridge loan terms differ?
Bridge loans are short term loans, with typical initial terms of 6–12 months, with extension options available. Because their terms are so different, a bridge loan’s pricing should not be compared directly with a conventional fixed rate loan.
What changes the price of a commercial loan?
Pricing depends on nationwide trends and on your own situation. Inflation, economic growth, employment and the Federal Reserve all move rates across the market. When the economy performs well, rates tend to rise, and when it slows, they tend to fall. For a single loan, your financial situation, credit history, loan type and terms decide the rate, which is why no universal rate can be promised. Rates vary by lender, property and loan terms. Daily benchmark rates are on our commercial mortgage rates page.
To work out an estimate yourself, use our commercial mortgage calculator. Any figures it gives are general guidelines only and not an offer to lend.
Frequently asked questions
What loan terms are common for commercial mortgages?
Commercial loans most often have five, seven or ten year terms. Terms of 25 or 30 years, common for residential mortgages, are less likely in commercial lending, and 15 year terms appear only from time to time. The amortization period is often longer than the term, which leaves a balloon payment at the end.
What determines commercial mortgage rates?
Rates depend on nationwide trends and on your own situation. Inflation, economic growth, employment and the Federal Reserve move rates across the market. For a single loan, your financial situation, credit history, loan type and terms decide the rate, which is why no universal rate can be promised to every borrower.
How do bridge loan terms differ?
Bridge loans are short term financing, with typical initial terms of 6–12 months, with extension options available. Because their terms are so different from a conventional loan, a bridge loan’s pricing should not be compared directly with a five, seven or ten year fixed rate loan.
Can I estimate a loan payment myself?
Yes. The commercial mortgage calculator on our site lets you enter your loan details and work out an estimate. Any figures it produces are general guidelines only, not an offer to lend, so contact Clopton Capital directly for pricing on a specific loan.
For specific terms on a commercial loan, please contact Clopton Capital directly.
