Terms of A Commercial Mortgage
The majority of Commercial Mortgages in the United States, while requiring the borrower to simply make a monthly payment small enough to pay off the loan over a 20 to 30 year time frame, require a balloon payment (a total payoff) after a lesser time frame. The borrower most likely will attempt at that time to refinance the loan or sell the property. Thus there are two elements generally to the term of a commercial mortgage loan: the length of time allowed until balloon payment (known simply as the term), and the amortization. The length of the loan can vary from a matter of days to 30 years. If a loan had a 30 year amortization schedule, but a 10 year term it would commonly be referred to as a 10 year balloon with a 30 year payment schedule.
As an example, assume a $15,000,000 loan at 8% interest with a 30 year amortization schedule and 10 year term (a 10/30 loan) with monthly payments. The payment amount would be $110,065 per month or $1,320,776 per year if it were on a typical 360 day accrual (in Excel: =PMT(8%/12,30*12,15000000,0)*12 ). The principal balance owed (to the mortgage bank) at the end of each of year would be:
| Year | $ Balance | $ Paid During year |
|---|---|---|
| 0 | $15,000,000 | $1,320,776 |
| 1 | $14,874,695 | $1,320,776 |
| 2 | $14,738,991 | $1,320,776 |
| 3 | $14,592,022 | $1,320,776 |
| 4 | $14,432,856 | $1,320,776 |
| 5 | $14,260,479 | $1,320,776 |
| 6 | $14,073,794 | $1,320,776 |
| 7 | $13,871,615 | $1,320,776 |
| 8 | $13,652,655 | $1,320,776 |
| 9 | $13,415,521 | $1,320,776 |
| 10 | $13,158,706 | $1,320,776 |
At the end of the 10 year loan term, the borrower would have to pay the remaining balance (balloon payment) of $13,158,706. Note: If this table were continued, '$ owed to bank' would reach exactly $0 at year 30 since the loan type is 10/30.
Read more about this topic: Commercial Mortgage
Famous quotes containing the words terms of a, terms of, terms, commercial and/or mortgage:
“The mystic purchases a moment of exhilaration with a lifetime of confusion; and the confusion is infectious and destructive. It is confusing and destructive to try and explain anything in terms of anything else, poetry in terms of psychology.”
—Basil Bunting (1900–1985)
“An evident principle ... is the principle of justice to all peoples and nationalities, and their right to live on equal terms of liberty and safety with one another, whether they be strong or weak.”
—Woodrow Wilson (1856–1924)
“The research on gender and morality shows that women and men looked at the world through very different moral frameworks. Men tend to think in terms of “justice” or absolute “right and wrong,” while women define morality through the filter of how relationships will be affected. Given these basic differences, why would men and women suddenly agree about disciplining children?”
—Ron Taffel (20th century)
“So by all means let’s have a television show quick and long, even if the commercial has to be delivered by a man in a white coat with a stethoscope hanging around his neck, selling ergot pills. After all the public is entitled to what it wants, isn’t it? The Romans knew that and even they lasted four hundred years after they started to putrefy.”
—Raymond Chandler (1888–1959)
“We are playing with fire when we skip the years of three, four, and five to hurry children into being age six.... Every child has a right to his fifth year of life, his fourth year, his third year. He has a right to live each year with joy and self-fulfillment. No one should ever claim the power to make a child mortgage his today for the sake of tomorrow.”
—James L. Hymes, Jr. (20th century)