How Do Commercial Mortgage Calculators Work?
Where traditional loan calculators are ideal for use when applying for mortgages, or borrowing particular sums of cash – commercial property mortgage calculators differ in a few aspects. Both can be used to calculate how much a borrower will be expected to pay back and what they owe each month (or week), but the latter will certainly offer more accurate results to those hoping to undertake a mortgage for commercial purposes.
What are the similarities?
As with the regular type of calculator, the commercial alternative will feature input areas that include the loan amount, the current rate of interest and the duration of the repayment. These factors are a necessary part of the payment calculation process and are vital for the tool to properly process the formula.
The result will also appear in much the same way – with a sum that details the amount that will be due to paid, depending on the frequency of the schedule as defined by the relevant input field. As an example, if $1000 was due to be paid back each month, then this would work out as $250 per week – before taking the current interest rates into account.
Where does the tool differ?
There are extra input fields that can be found within this tool that won’t be seen in a regular mortgage calculator and they include the following:
- P and I Payment field
- Interest-Only Payment field
- Balloon Payment field
Not all of them will need to be filled in, but it’s advisable to do so to ensure that the final calculable sum is as accurate as possible. The closer this amount is to what you can expect to repay, the better you will be able to budget for your loan. A bank will be far more likely to approve a mortgage for a commercial property if the borrower can demonstrate that they are on top of their finances – and a calculator can definitely help with that.
What do these extra fields mean?
P & I stands for principal and interest. Commercial mortgages will typically feature these terms (as will the majority of business loans). It applies to a unique type of fee that will be added to the cost of monthly repayments. The interest-only payment field does exactly what its name might suggest – it applies to the duration of a mortgage that is subjected to interest-only terms.
For example, if the duration of interest is set at 5 years, then the interest-only payment term will be 5 years – after which point the borrower may want to refinance their commercial property at a new interest rate. This is why many borrowers opt for fixed rate mortgages over the course of this period, so as to be sure of what they will be expected to pay throughout the duration of the 5 years.
The balloon payment field applies directly to the types of loans that will be subjected to a large sum at the end of the loan period. Once the principal sum has been set at the beginning of the repayment, it will be split into individual payments over the course of a year. If the costs haven’t been repaid in full, the borrower will be expected to cover the difference when their loan period comes to an end.
And this is what a commercial calculator can help with – working out exactly what can be expected to be repaid when purchasing a property for commercial reasons.