How commercial loans are sized
A commercial lender offers the smaller of two amounts: a share of the property's value, and the loan whose payments the income can cover with a margin.
| Test | Calculation | Loan allowed |
|---|---|---|
| Loan-to-value | $4,200,000 × 75% | $3,150,000 |
| Debt coverage | $265,000 ÷ 1.25 = $212,000 of yearly payments at 6.4% over 30 years | $2,824,380 |
| Maximum loan | The lesser | $2,824,380 |
Here the coverage test binds, so the buyer needs $1,375,620 of equity (32.8%), not 25%. When rates rise, the coverage limit falls even if the value does not, because each dollar of loan costs more to carry; the annual payment per dollar borrowed (the loan constant) always exceeds the interest rate.[7]
How commercial and multifamily rates are set
An agency multifamily rate is an index plus a spread: a Treasury yield for fixed-rate loans and the 30-day average SOFR for floating-rate loans.
- Fixed rate. Freddie Mac lets borrowers lock "the most volatile part of the coupon", the Treasury index, before locking the spread.[3][8]
- Floating rate. Freddie Mac's floating-rate loans and Fannie Mae's ARM loans use the 30-day average SOFR as the index.[9][10] At Fannie Mae, the rate above the index is the investor spread plus the guaranty and servicing fees.[11][10]
Neither agency publishes its spreads, so watch the index: the 10-year Treasury yield was 4.98% on November 10, 2026.[12] Enter the rate on your own quote in the worksheet.
Agency multifamily terms
Fannie Mae and Freddie Mac publish their standard limits for apartment loans:
| Program | Min DSCR | Max LTV | Term and amortization |
|---|---|---|---|
| Fannie Mae DUS Conventional[1] | 1.25× | 80% | Terms of 5 to 30 years, amortization up to 30 years; 5+ units |
| Fannie Mae Small Loans[2] | 1.25× | 80% | Loans up to $9 million |
| Freddie Mac Optigo fixed-rate[3] | 1.25× | 75%–80% | Minimum loan $10 million; 65%–70% LTV if interest-only for the full term |
Freddie Mac's Small Balance Loan program stopped taking applications on April 30, 2026.[6] Banks, credit unions, life insurers and CMBS lenders set their own terms for other property types.
What lenders do to your NOI
The NOI a lender sizes on is usually lower than the seller's. Fannie Mae, for example, subtracts a replacement reserve of at least $200 per unit per year and tests coverage on that net cash flow;[5][4] it applies minimums for vacancy, management, taxes and insurance; and it uses an amortizing payment at the higher of the note rate or its underwriting floor, even for interest-only loans.[4] Run your own figures through the NOI calculator with those floors before relying on a loan size.
Amortization, term and the balloon payment
Commercial loans often amortize over 25 or 30 years but come due after 5, 7 or 10. The payment is set by the amortization period; whatever is still owed at the end of the term is due in one balloon payment, usually repaid by refinancing or selling.
- In the example, a $2,824,380 loan over 30 years costs $17,667 a month and still owes $2,388,364 at year 10.
- Three years of interest-only lower the early payment to $15,063, but leave $2,549,415 due at maturity because amortization starts later.
- Debt yield, NOI ÷ loan amount, is 9.38% here. It ignores the rate and amortization, so it shows how much income backs each dollar of debt. If a lender sets a minimum debt yield, enter it and the worksheet adds it as a third sizing test.
Already have a term sheet? Switch the worksheet to "I have a loan amount" to see the payment, the interest over the term and the balloon without entering NOI, then download the year-by-year schedule as a CSV file.
Refinance riskA balloon has to be refinanced at whatever rates and values exist at maturity. If NOI falls or rates rise, the new maximum loan may be smaller than the balance due.
For a small rental on a residential loan, use the investment property mortgage calculator or the DSCR loan calculator. To check coverage on an existing loan, use the DSCR calculator; to value the building, the cap rate calculator.
Frequently asked questions
How much can I borrow on a commercial property?
The lesser of the lender's maximum loan-to-value times the value, and the loan whose payments the NOI covers at the minimum DSCR. Agency apartment loans use 1.25× and up to 80% LTV.
What is a balloon payment on a commercial mortgage?
The remaining balance due at the end of the loan term when the payments were set on a longer amortization period, such as a 10-year loan amortized over 30 years.
What DSCR do commercial lenders require?
Fannie Mae and Freddie Mac multifamily loans require at least 1.25. Other lenders and property types vary.
How are commercial mortgage rates determined?
Agency multifamily rates are an index plus a spread: a Treasury yield for fixed-rate loans and the 30-day average SOFR for floating-rate loans. The spread depends on the lender, the property and the loan terms.
What is debt yield?
NOI divided by the loan amount. Unlike DSCR it does not depend on the interest rate or amortization.
Sources
- Conventional Properties Term Sheet (DUS)
- Small Mortgage Loan Program Term Sheet
- Optigo Fixed-Rate Loans term sheet
- 203.02 Underwritten DSCR (Multifamily Selling and Servicing Guide)
- 203.01 Underwritten Net Cash Flow (Multifamily Selling and Servicing Guide, Part II, Ch. 2)
- Multifamily Seller/Servicer Guide Bulletin M2026-4 (Small Balance Loan applications end)
- Etter, W. E. Calculating Mortgage Loans (Publication 923)
- Index Lock FAQs
- Optigo Floating-Rate Loan term sheet
- Chapter 10, Adjustable Rate Mortgage (ARM) Loans (Multifamily Selling and Servicing Guide)
- Multifamily Guide glossary: Index, Investor Spread, 30-Day Average SOFR
- H.15 Selected Interest Rates (Daily)