Commercial Loan Payment Calculator: How to Calculate Monthly Debt Service
Learn how to calculate monthly and annual debt service for commercial real estate loans, with formulas, worked examples, and how debt service impacts DSCR and cash flow.
Why debt service matters
Debt service (your total monthly or annual mortgage payment) is the single largest fixed cost in most leveraged commercial real estate investments. It determines your cash flow after financing, your debt service coverage ratio (DSCR), and ultimately whether the deal works with leverage or only as an all-cash purchase.
Getting this number right during underwriting is non-negotiable. A mistake in your debt service calculation cascades through every downstream metric: cash-on-cash return, DSCR, IRR, and your ability to qualify for the loan in the first place. Yet many investors estimate this number loosely instead of calculating it precisely.
The loan payment formula
Amortizing loan payment
Payment = P × (r × (1+r)n) / ((1+r)n − 1)
P = principal, r = monthly interest rate, n = total monthly payments
Principal (P)
The loan amount. For a $4,000,000 property at 75% LTV, the principal is $3,000,000.
Monthly Rate (r)
The annual interest rate divided by 12. A 6.5% annual rate = 0.065 / 12 = 0.005417 monthly.
Number of Payments (n)
The amortization period in months. A 25-year amortization = 300 monthly payments. Note: this is the amortization period, not the loan term.
Interest-Only Alternative
For interest-only loans, the calculation is simpler: Monthly Payment = Principal × Annual Rate / 12. A $3M loan at 6.5% interest-only = $16,250/month. No principal reduction occurs: the full balance is due at maturity.
Worked examples
Standard amortizing loan
Sample inputs
- Purchase price
- $4,000,000
- LTV
- 75%
- Loan amount
- $3,000,000
- Interest rate
- 6.50%
- Amortization
- 25 years
- NOI
- $340,000
A $4M industrial property purchased at 75% LTV ($3M loan). At 6.5% interest with 25-year amortization, the monthly payment is $20,256, or $243,075 annually. If the property generates $340,000 NOI, the DSCR is $340,000 / $243,075 = 1.40x. This exceeds most lender minimums of 1.20x-1.25x.
Interest-only period
Sample inputs
- Loan amount
- $3,000,000
- Interest rate
- 6.50%
- I/O period
- 2 years
- NOI
- $340,000
Same loan but with a 2-year interest-only period before amortization begins. Monthly payment during IO: $3M × 6.5% / 12 = $16,250 ($195,000/year). DSCR during IO: $340,000 / $195,000 = 1.74x. IO periods improve early cash flow and DSCR but no principal is paid down. You owe the same amount at the end.
Higher LTV, longer amortization
Sample inputs
- LTV
- 80%
- Loan amount
- $3,200,000
- Interest rate
- 7.00%
- Amortization
- 30 years
- NOI
- $340,000
An 80% LTV loan ($3.2M) at 7.0% with 30-year amortization. Monthly payment: $21,290 ($255,480/year). Despite the higher loan amount and rate, the 30-year amortization keeps the payment manageable. DSCR on $340,000 NOI: 1.33x. Compare this to the 25-year amort example: $1,024 more per month for $200K more in proceeds.
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Use DealWise AI’s free Loan Payment Calculator to model any commercial financing scenario: adjust loan amount, rate, and amortization and see monthly payment and annual debt service instantly.
How debt service connects to DSCR
DSCR (Debt Service Coverage Ratio) is NOI divided by annual debt service. Lenders use it to determine the maximum loan amount your property can support. Here’s how the math works in practice:
If a lender requires a minimum 1.25x DSCR and your property generates $300,000 NOI, the maximum annual debt service they’ll allow is $300,000 / 1.25 = $240,000 ($20,000/month). Working backwards from that payment at a given rate and amortization gives you the maximum loan amount, regardless of what the LTV calculation says.
DSCR is often the binding constraint. You might qualify for 75% LTV based on the appraised value, but if the DSCR doesn’t support that loan amount at current rates, the lender will size the loan to meet their DSCR requirement. This is why modeling debt service accurately during underwriting is so important. It tells you the realistic maximum leverage before you apply.
Frequently asked questions
What's the difference between amortization and loan term?
Amortization is the schedule over which the loan is repaid, typically 20-30 years in commercial real estate. The loan term is how long the loan actually lasts before the remaining balance (balloon payment) is due, typically 5-10 years. Your monthly payment is based on the amortization period, but you'll need to refinance or pay off the remaining balance when the term expires.
Should I choose interest-only or amortizing?
Interest-only periods lower your monthly payment and improve cash flow in the early years, which can be valuable for value-add deals where you need capital for improvements. However, you're not paying down principal, so your loan balance stays the same. Amortizing loans build equity over time and reduce refinancing risk. Many loans offer 1-3 years of IO followed by amortization, a hybrid approach.
How do I calculate the maximum loan amount a property can support?
Start with NOI, divide by the lender's required DSCR to get maximum annual debt service, then use a loan payment calculator to determine what principal amount produces that payment at the expected rate and amortization. For example: $400,000 NOI / 1.25 DSCR = $320,000 max annual debt service. At 6.5% and 25-year amortization, that supports approximately $3.95M in loan proceeds.
What happens when interest rates change by 1%?
A 1% increase in interest rate on a $3M loan with 25-year amortization increases the monthly payment by approximately $1,700-$1,900, or roughly $20,000-$23,000 per year. On the same NOI, that reduces your DSCR by 0.06x-0.08x and your cash flow by the same amount. Always stress-test your underwriting with a rate increase scenario.
Final thoughts
Debt service is the heartbeat of leveraged commercial real estate investing. Every dollar of monthly payment affects your cash flow, your coverage ratio, and your return on equity. Calculate it precisely, stress-test it against rate increases, and understand how it interacts with DSCR constraints before you commit to a deal.
DealWise AI calculates debt service automatically from your loan inputs, and shows how it flows through to DSCR, cash-on-cash return, IRR, and the full multi-year cash flow projection. No formulas to build. No spreadsheet to maintain.
Related guides
What is DSCR?
The metric that sizes your loan.
Amortization vs interest-only
How loan structure impacts cash flow.
Amortization vs interest-only: full comparison guide
The same $3M loan at 6.50%, carried across a five-year hold.
Commercial real estate loan terms
Every CRE financing term explained.
How to calculate cap rate
Cap rate formula with worked examples.
How to calculate DSCR
Step-by-step, from NOI to coverage.
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