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Commercial mortgage glossary
The terms your lender will use, defined plainly.
- Amortization
- The schedule over which a loan would fully pay off — often 25–30 years on commercial loans, even when the loan itself comes due sooner.
- Balloon payment
- The remaining balance due at the end of the loan term (because the term is shorter than the amortization). You refinance or pay it off.
- Bridge loan
- Short-term financing (6–36 months) to acquire, reposition, or stabilize a property before permanent financing.
- Cap rate
- Net operating income divided by property value — a market measure of yield used to value income property.
- CDC
- Certified Development Company — the nonprofit that provides the second loan in an SBA 504 structure.
- Debt service
- Your total loan payments over a period. Annual debt service is the monthly payment times twelve.
- DSCR
- Debt Service Coverage Ratio: net operating income ÷ annual debt service. Lenders typically want 1.25x or higher.
- Debt yield
- Net operating income ÷ loan amount, as a percent. A leverage check that ignores rate and term; often 9–10%+.
- Defeasance
- Exiting a loan by substituting government securities that reproduce the remaining payments, instead of paying it off. Common in CMBS.
- LTV
- Loan-to-value: the loan divided by the property's value. Commercial lenders usually cap it around 65–75%.
- LTC
- Loan-to-cost: the loan divided by total project cost — used on construction and value-add deals.
- Mortgage recording tax
- A tax on the mortgage amount at closing. In NYC it's the combined ~2.80% on commercial loans of $500k+, and often the largest single closing cost.
- NOI
- Net operating income: gross income minus operating expenses, before debt service. The basis of most commercial underwriting.
- Non-recourse
- A loan where the lender's remedy on default is the property, not your other assets (subject to standard 'bad-boy' carve-outs). Recourse loans put your guarantee behind the debt.
- Owner-occupied
- Property where the borrower's own business occupies a majority of the space (51%+). Required for SBA real-estate loans; pure rentals don't qualify.
- Prepayment penalty
- A charge for paying a loan off early — structured as a step-down, yield maintenance, or defeasance. See the prepayment guide.
- Yield maintenance
- A prepayment penalty that makes the lender whole for lost interest, discounted to present value. Expensive when rates have fallen since closing.
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