Amortization
The gradual repayment of loan principal through scheduled payments over time. Commercial real estate loans typically have 25-30 year amortization schedules, meaning the payment is calculated as if the loan would be fully repaid over that period. Most loans have shorter terms than their amortization, resulting in a balloon payment at maturity.
Related Terms
Interest-Only (I/O)
A loan payment structure where the borrower pays only interest for a specified period, with no principal amortization. Interest-only periods improve cash flow and increase leveraged returns. They are commonly available for 1-10 years depending on loan type and leverage. After the I/O period, the loan typically converts to amortizing payments.
Balloon Payment
The remaining principal balance due at the end of a loan term that has not fully amortized. Most commercial real estate loans have 5-10 year terms with 25-30 year amortization schedules, resulting in a large balloon payment at maturity. Borrowers typically refinance or sell the property to pay off the balloon.
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