What is a Commercial Mortgage Loan?

What is a Commercial Mortgage or Commercial Real Estate Loan?  

A commercial mortgage loan is a commercial real estate loan that is secured by commercial property. A commercial real estate loan is an agreement in which the proceeds from the contract are used to buy, upgrade or rehabilitate a commercial property. A commercial property consists of any real estate whether it is land, building or both whose primary purpose is to generate revenue. Examples of commercial property are apartments, office buildings, or shopping malls.  

There are various types of commercial loans. However, the most common are permanent loans, bridge loans, commercial construction loans, and conduit loans. The structure of the loan primarily consists of the principal (amount being loaned) and interest rate and term (length of time of the loan). Other factors such as the borrower's credit score, the commercial property being used as security, general market conditions etc., determine the structure of a commercial mortgage loan.

The relation between the amortization period and the loan term is an important feature of a commercial loan. The loan term is the period in which the borrower will make and complete all loan payments. Amortization is the scheduling of equal payments over a specified period that would pay off the principal and interest on the loan. In general, amortizations for commercial real estate loans are significantly longer than the loan term. However, this is not always the case, as some loans, such as permanant life company loans, may be fully amortizing.

A lender, for example, might make a commercial loan for a term of seven years with an amortization period of 30 years. In this situation, the investor would make payments for seven years of an amount based on the loan being paid off over 30 years, followed by one final “balloon” payment of the entire remaining balance on the loan. For example, an investor with a $1 million commercial loan at 7% would make monthly payments of $6,653.02 for seven years, followed by a final balloon payment of $918,127.64 that would pay off the loan in full.
— Investopedia 

If you would like to see how your commercial loan could be structured, try our easy to use commercial mortgage calculator


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