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.
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Related Terms
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.
DSCR (Debt Service Coverage Ratio)
A measure of a property's ability to cover its debt obligations, calculated by dividing Net Operating Income (NOI) by annual debt service. Lenders typically require a minimum DSCR of 1.20x to 1.35x, meaning the property generates 20-35% more income than needed to pay the mortgage. Higher DSCRs indicate lower risk and may qualify for better loan terms.
More Deal Structure Terms
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