Since this is new to me, I’m curious as to how mortgage payments for commercial property works. After all the dust has settled and the deal is done - let’s say for a property that went for 900K financed for 20 years @ 7.25% fixed. Are payments calculated like conventional s/f homes or are there a few more twists and turns, being that I am not a seasoned investor.
The payment would be calculated using simple interest like a conventional loan product, with the exception of paying taxes and insurance yourself, not escrowed. However there are other things you have to take into account along with the payment. Depending on the size of the property you will most likey have to pay a property manager; as well as utilities like water for the entire complex, and electricity for the common and outside areas.
Unless you specifically have an Interest Only loan, you would not calculate using “Simple Interest”.
As far as calculating the Monthly Mortgage Payment (Principle and interest), amortization is amortization. Whether commercial property, SFR a car, etc.
Just plug the numbers into the formula or a mortgage calculator.
$900,000 @ 7.25% for 20 years is a $7113.38
If you have an Interest Only loan then it is simple interest.
$900,000 @ 7.25% /12 is $5437.50.
It is true that with a commercial loan you may have additional monthly fees or payments required but they have nothing to do with how you calculate the amortization of the loan.
Wes, I am afraid you are incorrect. Simple interest has nothing to do with interest only. Here is the definition of simple interest.
simple interest-The interest rate is applied only to the original principal amount in computing the amount of interest.
You pay your payment in arrears to cover interest that has accrued since your last payment, along witha small amount of principle. Interest only would be if I was paying only the interest and not paying any principle for a decided upon amount of time. C’mon man this is basic loan officer stuff, you should know this.
p.s. calculating interest and payments on a car is not done the same way as calculating interest on a house. At this point I am frightened that you are allowed to work in the field of finance.
Sorry Richard J,
I’m not sure of your point. But you are not correct.
The question was regarding mortgage Payments and basically whether a commercial loan is calculated differently than a SFR loan.
Christopher answered that the loan would be calculated using simple interest just as a conventional loan product. That is not true.
If it were, the $900K @ 7.25% over 20 years would require a $9187.50 monthly payment (we can do the math if you choose).
In fact when the loan is amortized over 20 years, the Principle and Interest payment would actually be $7113.38 per month.
Simple interest formula (I= Principle x rate x time)would equal $1,305,000 in interest for this $900,000 loan over 20 years.
Actually by amortizing, the actual interest paid would be $801,169.41
Also, Interest Only loans are absolutely calculated using simple interest. Only you pay back “Only the Interest” during the interest only period. If you have the type loan that recalculates each month, in the event you make a payment that reduces the principle, then the payment changes but the interest is still calculated as simple interest.
As for car loans, I do not do them. Perhaps you do and know something I do not.
However, seems to me they are amortized exactly the same way as a home mortgage EXCEPT when there is a downpayment involved. In which case the calculation does change. Since there usually is some sort of downpayment, I will admit you are correct that they are not calculated the same most of the time.
Since you just registered for this site, seems you might be rather new to it. I find it interesting you came right out the gate attacking instead of just making your point
Is that what we should expect from you in the future are do you have any other agenda??
You are correct. I must of had Denver Broncos fever when I posted that. Richard J, time to be a man and admit you were wrong as well. LOL. Keep up the good work Wes, knowledge is power.