Understanding Amortization Schedules in Commercial Real Estate: 10, 15, and 25 Years

When financing commercial real estate (CRE) projects, the amortization schedule plays a crucial role in determining how a loan is repaid over time. These schedules vary based on the loan term, which can significantly impact monthly payments, total interest paid, and overall financial planning. In CRE, common amortization periods include 10, 15, and 25 years, each offering distinct advantages and considerations.

#### What is an Amortization Schedule?

An amortization schedule is a detailed table that breaks down each loan payment into principal and interest components. It shows how much of each payment goes toward reducing the loan balance (principal) and how much goes toward interest. This schedule is essential for borrowers to understand their repayment obligations and plan their finances effectively.

#### 10-Year Amortization Schedule

A 10-year amortization schedule is typically chosen by borrowers who want to pay off their loan quickly. While monthly payments are higher compared to longer terms, the total interest paid over the life of the loan is significantly reduced.

**Advantages:**
- **Lower Interest Costs:** Shorter amortization periods mean less interest is accrued over the life of the loan.
- **Quick Equity Build-Up:** Faster principal repayment results in quicker equity accumulation.
- **Less Interest Rate Risk:** Shorter terms reduce exposure to fluctuating interest rates.

**Considerations:**
- **Higher Monthly Payments:** The primary downside is higher monthly payments, which may strain cash flow.
- **Tighter Qualification Requirements:** Lenders may have stricter criteria for shorter-term loans due to higher monthly obligations.

#### 15-Year Amortization Schedule

A 15-year amortization schedule offers a balance between the rapid repayment of a 10-year schedule and the lower monthly payments of a 25-year schedule. It is a popular choice for many CRE investors.

**Advantages:**
- **Moderate Interest Savings:** Compared to a 25-year term, borrowers save on interest while keeping payments more manageable than a 10-year term.
- **Balanced Cash Flow:** Monthly payments are lower than a 10-year schedule, providing a better balance between debt repayment and operational cash flow.
- **Faster Equity Build-Up:** The principal is paid down more quickly than in longer-term loans.

**Considerations:**
- **Moderate Monthly Payments:** Payments are higher than a 25-year schedule but lower than a 10-year schedule.
- **Qualification Requirements:** Borrowers still need to meet certain financial criteria to qualify for these loans.

#### 25-Year Amortization Schedule

A 25-year amortization schedule is often chosen by borrowers seeking the lowest possible monthly payments. This schedule spreads out the repayment over a longer period, making it easier to manage cash flow, particularly for new or expanding businesses.

**Advantages:**
- **Lower Monthly Payments:** Spreading out payments over 25 years results in the lowest monthly obligations.
- **Easier Cash Flow Management:** Lower payments can ease cash flow pressures, allowing more capital for business operations or other investments.
- **Flexible Financial Planning:** The reduced monthly burden provides more flexibility in financial planning.

**Considerations:**
- **Higher Total Interest:** Longer amortization periods result in higher total interest paid over the life of the loan.
- **Slower Equity Build-Up:** Principal repayment is slower, delaying equity accumulation.
- **Extended Interest Rate Exposure:** Longer terms increase the risk of interest rate changes affecting loan costs.

### Conclusion

At Atlantic Commercial Lending, we recognize that each commercial real estate investor has unique financial goals and needs. We work with our clients to select the optimal amortization schedule, whether it's 10, 15, or 25 years, ensuring they understand the implications of each choice. Our team is dedicated to providing tailored solutions that align with your investment strategy and financial objectives.