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Commercial mortgage terms determine how much cash you must invest, how safely the building can carry its debt, what you will owe at maturity, and how expensive it is to sell or refinance. Before choosing a loan, compare each proposal on the same property assumptions and ask the lender to show the calculations behind loan proceeds, LTV, DSCR, debt yield, payment, maturity balance, prepayment cost, guarantees, and closing conditions.
No single headline rate identifies the better loan. A proposal with more proceeds can rely on more optimistic income or value assumptions, while a low payment can conceal a large balloon balance or costly exit provision. The framework below puts the terms side by side and shows what to request in writing.
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| Name | Best for | Key spec | Checked |
|---|---|---|---|
| Loan amount and cash to close | Knowing the true equity requirement | Net proceeds after fees, reserves, escrows and paydowns | November 2026 |
| LTV | Testing value-based leverage | Loan amount divided by property value | November 2026 |
| DSCR | Testing payment coverage | Annual NOI divided by required annual debt service | November 2026 |
| Debt yield | Comparing credit risk without rate assumptions | NOI divided by loan amount | November 2026 |
| Rate structure | Managing payment volatility | Fixed or floating; index, spread, floor, cap and lock period | November 2026 |
| Term, amortization and maturity balance | Planning the refinance or sale | Due date can arrive before the amortization schedule ends | November 2026 |
| Interest-only period | Managing early cash flow | Lower initial payment but slower principal reduction | November 2026 |
| Prepayment provisions | Preserving exit flexibility | Yield maintenance, declining premium, lockout, defeasance or open period | November 2026 |
| Recourse, guarantees and covenants | Understanding personal and property-level exposure | Guarantors, carve-outs, reporting, reserves and cash controls | November 2026 |
| Fees and execution conditions | Comparing total cost and closing certainty | Origination, third-party, lock, extension and reserve requirements | November 2026 |
How should you compare commercial mortgages for an apartment building?
Start with a normalized comparison sheet. Give every lender the same rent roll, vacancy and collection assumptions, operating expenses, capital plan, valuation, and interest-rate scenario. Then request the lender’s underwritten NOI definition, each ratio calculation, monthly debt service, projected payoff balance, cash required at closing, and payoff amounts on the dates you might sell or refinance.
Compare total dollars and risk over your expected holding period, not just the note rate. If one quote produces a larger loan, determine whether it does so because of a higher value, higher underwritten NOI, lower expenses, a different debt-service convention, or simply a more aggressive assumption. Published program terms are examples; your executed documents control.
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What loan amount and cash required at closing should you compare?
The advertised principal is not the amount you can use. Record net proceeds after origination charges, lender reserves, tax and insurance escrows, replacement-reserve funding, repair escrows, defeasance or other required paydowns, and any cash you must leave in the transaction.
Ask for a sources-and-uses statement showing:
- Gross loan commitment and the conditions for funding it.
- All deductions at closing and whether they are financed or paid in cash.
- Required operating, replacement, tax, insurance and repair reserves.
- Equity needed for the purchase price, closing costs and post-closing liquidity.
- The property value, NOI and other assumptions that set the proposed amount.
Two loans with identical principal can require different equity if one lender escrows more, charges higher fees, or requires a larger initial reserve. Conversely, a higher commitment may not deliver more usable cash if it is offset by funded reserves.
How do LTV, DSCR and debt yield differ?
These ratios measure different risks and should be reviewed together. FHFA describes multifamily DSCR as annual net operating income divided by required annual debt service. LTV tests leverage against value; debt yield tests the property’s NOI against the loan balance.
LTV: how much value supports the loan?
LTV = loan amount ÷ property value. A lower LTV generally means more value cushion if the property must be sold, but it also means more equity is tied up. Confirm which value the lender uses: purchase price, an appraisal, or another underwritten value, and ask whether value is adjusted for repairs, concessions or other factors.
DSCR: can current income cover scheduled debt service?
DSCR = annual underwritten NOI ÷ required annual debt service. A ratio above 1.00x indicates NOI exceeds scheduled debt service under the lender’s assumptions; the higher the ratio, the more cushion in that scenario. The result changes with the lender’s NOI adjustments, vacancy and collection assumptions, management fees, replacement reserves, interest rate and amortization.
Ask whether sizing uses amortizing debt service even during an interest-only period. A loan can show a strong introductory cash flow while being sized to a different, higher payment after interest-only ends.
Debt yield: what does NOI produce on the loan amount?
Debt yield = annual NOI ÷ loan amount. The Office of the Comptroller of the Currency (OCC) says debt yield provides a risk measurement independent of the interest rate, amortization period and capitalization rate. It is not a substitute for DSCR or LTV: it does not show the payment burden or the value cushion.
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Because NOI definitions vary, request the exact income and expense line items used in all three ratios. An illustrative example: if a lender underwrites $500,000 of NOI and a $5 million loan, debt yield is 10%; if annual debt service is $375,000, DSCR is 1.33x. Those figures are arithmetic examples, not market thresholds.
What interest-rate details matter beyond the quoted rate?
First identify whether the rate is fixed or floating. A fixed rate makes scheduled payments easier to forecast. A floating rate can change as its index changes, so compare the index, spread, reset frequency, floor, cap, and any fallback language in the note and related documents.
Also document the rate-lock mechanics:
- When the lock begins and when it expires.
- Whether the lender can reprice or cancel the lock if underwriting changes.
- Any lock fee, extension fee or breakage charge.
- The interest-rate assumption used for DSCR and loan sizing if the quote is not yet locked.
Do not treat a quoted spread as a guaranteed all-in rate. The index can move before closing, and the legal documents determine how resets and caps operate.
How do term, amortization and the maturity balance affect risk?
The term is the period until the outstanding balance is due. Amortization is the schedule used to calculate principal repayment. If the term is shorter than the amortization schedule, you will owe a balloon balance at maturity even though the payment was calculated on a longer schedule.
Request an amortization schedule and the exact projected payoff balance at maturity. Then run a stressed refinance illustration using a higher interest rate, a lower property value, and a conservative NOI. A long amortization can reduce monthly debt service but leave more principal to refinance or repay. A shorter amortization pays down debt faster but can reduce DSCR and available proceeds.
The OCC’s commercial real estate lending guidance treats both maturities and amortization schedules as core underwriting standards. Match the maturity to your realistic sale, refinance and business-plan timeline rather than assuming the loan will automatically be extended.
Is an interest-only period worth the trade-off?
Interest-only payments can improve cash flow during lease-up, renovations or another early operating phase, but they leave the principal unchanged during that period. Compare the payment during interest-only, the payment afterward, the remaining balance at maturity, and the DSCR used for sizing.
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Ask these questions in writing:
- How many months are interest-only, and can the period be extended?
- Does amortization begin automatically on a specified date?
- Is the loan sized to the interest-only payment or to the later amortizing payment?
- What is the balance immediately before and after the interest-only period?
Model both phases in your operating budget. A payment jump after interest-only ends can reduce distributions or force additional equity if rents or occupancy do not reach the underwriting case.
What prepayment terms should you compare?
Prepayment provisions can determine whether you can sell, refinance or recapitalize at an acceptable cost. Put each proposal’s restriction on one line and request a payoff calculation for the dates you consider likely.
Common structures include:
- Yield maintenance: a formula intended to compensate the lender for the value of scheduled payments when a fixed-rate loan is prepaid.
- Declining premium: a charge that steps down over time.
- Lockout: a period during which voluntary principal repayment is prohibited or tightly limited.
- Defeasance: replacing the real-estate collateral with qualifying securities under the loan documents.
- Open period: a window near maturity when prepayment is allowed without the earlier restriction.
For a product example, Fannie Mae’s 2026 conventional multifamily term sheet describes yield maintenance for fixed-rate loans and a declining prepayment premium for variable-rate loans. That is a program-specific example, not a universal market rule. The note, security instrument and any amendments govern your actual payoff.
How much recourse and guarantee exposure are you accepting?
Identify the borrower, every guarantor, the guaranteed obligations, and when each guarantee begins and ends. Distinguish full payment recourse from completion, carry, environmental, bad-act or other limited guarantees. Carve-outs can create personal liability even when the principal loan is otherwise nonrecourse.
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Review related covenants and controls at the same time:
- Minimum liquidity, net-worth or financial-reporting requirements.
- Cash-management or lockbox provisions and conditions for releasing excess cash.
- Replacement, tax, insurance, interest or capital-improvement reserves.
- Restrictions on distributions, additional debt, transfers or changes in ownership.
- Events that trigger a cash sweep, springing recourse or a requirement to fund a shortfall.
OCC guidance says the borrower’s and guarantor’s capacity to support a loan should be analyzed. The legal effect of each provision is document-specific, so have qualified real-estate counsel review the guarantees and loan documents before signing.
Which fees, reserves and closing conditions belong in the comparison?
Ask for a written fee and condition schedule, not just a term-sheet rate. Include origination and underwriting charges, appraisal and inspection costs, environmental and engineering reports, legal fees, rate-lock and extension fees, reserve deposits, insurance requirements, and any minimum-interest or exit charges stated in the documents.
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Compare execution risk as well as price. Record the diligence deliverables, approval milestones, timing assumptions, expiration dates, and the consequences of a delayed closing. A quote that expires before the appraisal or third-party reports are complete may expose you to repricing or extension costs.
The available published sources do not establish a single standard fee schedule for every lender type. Treat each proposal and the final closing statement as the controlling evidence of charges and conditions.
How can you normalize competing loan offers?
Use the following process before deciding which proposal is actually better:
- Freeze the property case. Send every lender the same rent roll, historical operating statements, vacancy and collection assumptions, expense forecast, capital plan, purchase price and valuation information.
- Write down each NOI definition. Mark adjustments for vacancy, concessions, management, reserves, recurring capital expenses and one-time items.
- Recalculate LTV, DSCR and debt yield. Use the same numerator and denominator conventions where possible, and flag any unavoidable differences.
- Build the cash-to-close schedule. Start with gross proceeds and subtract fees, escrows, reserves and required paydowns.
- Model monthly payments. Show the rate, reset dates, interest-only period, amortization and payment after each change.
- Show maturity and exit costs. List the balance at maturity and payoff amounts at likely sale or refinance dates, including prepayment charges.
- Map liability and control provisions. List each guarantor, carve-out, covenant, reserve and cash-management trigger.
- Stress the weak points. Test lower NOI, higher rates, delayed lease-up, a lower valuation and a refinance at maturity.
- Obtain a final document checklist. Confirm that the commitment, note, mortgage, guarantees and closing statement match the commercial terms you compared.
Keep the lender’s written calculations with your model. If a lender will not disclose an assumption that materially affects proceeds or coverage, treat the quote as incomplete rather than filling the gap with your own estimate.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What does the 2026 Fannie Mae conventional term sheet illustrate?
The 2026 conventional multifamily term sheet lists 5–30-year loan terms, up to 30-year amortization, fixed- and variable-rate options, an 80% maximum LTV for conventional properties, a 1.25x minimum DSCR for conventional properties, and 30–180-day rate-lock commitments. It also describes the prepayment approaches noted above.
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1Fix the driver behind crashes, sound loss and screen glitches2Clear out junk files and repair common Windows errors3Scan for outdated or missing drivers - takes under a minuteThese are published product terms, not market-wide benchmarks or a promise that a particular apartment building will qualify. Eligibility, underwriting, property type, sponsorship, pricing and final documents determine the actual offer. Use the term sheet as a checklist of questions, then rely on the lender’s commitment and loan documents.
How can a spreadsheet or financial calculator help?
A spreadsheet is sufficient for most comparisons: create rows for beginning balance, rate, interest, principal, payment and ending balance, then add separate scenarios for rate resets, interest-only months and maturity payoff. An optional financial calculator can perform the same time-value-of-money calculations. The HP 12c user guide documents calculating principal and interest components and remaining loan balance, but no particular calculator is required.
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Use the model to answer practical questions: How much principal remains if the loan is sold in year five? What payment begins when interest-only ends? What payoff amount applies during the expected sale window? Which assumptions cause DSCR to fall below the lender’s requirement?
What are the most common comparison mistakes?
- Comparing headline rates while ignoring index, spread, floor, cap and lock expiration.
- Calling a long amortization a long-term loan and overlooking the balloon at maturity.
- Using one lender’s NOI for DSCR and another’s for debt yield without reconciling adjustments.
- Counting gross commitment as usable proceeds before reserves, escrows and fees.
- Assuming nonrecourse means no personal exposure despite carve-outs or completion guarantees.
- Evaluating prepayment only at maturity instead of at the likely sale or refinance date.
- Accepting a published program maximum as a guaranteed term for the specific property.
- Ignoring closing deadlines, rate-lock expiry and extension charges.
The strongest comparison is a transparent, date-specific model tied to the actual proposal and reviewed with legal and tax professionals where appropriate.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Bottom line: what should be on your comparison sheet?
For every loan, capture net proceeds and cash to close; the lender’s NOI and value assumptions; LTV, DSCR and debt yield calculations; fixed or floating-rate mechanics; term, amortization, interest-only period and maturity balance; prepayment cost at likely exits; recourse and guarantee scope; reserves, covenants and cash controls; every fee; and the conditions and deadlines for closing. Then compare total cost and downside exposure over your planned hold period. The better loan is the one whose assumptions, payment path and exit obligations fit the building and your risk capacity—not necessarily the one with the lowest quoted rate.
Frequently Asked Questions
Can a loan have a strong DSCR but a weak debt yield?
Yes. DSCR depends on annual debt service, which changes with the interest rate and amortization, while debt yield uses NOI divided by the loan amount. Ask the lender to reconcile both calculations using the same NOI definition before drawing a conclusion.
What should I request if the lender quotes only a maximum LTV?
Request the value used, the resulting dollar loan amount, all required reserves and the net proceeds after deductions. Also ask for DSCR and debt-yield sizing, because a loan that fits the value test may still be limited by income coverage.
When should I ask for a prepayment quote?
Ask for payoff examples on the dates you might realistically sell or refinance, not only on the maturity date. The amount can vary materially with yield-maintenance formulas, declining premiums, lockouts or defeasance requirements.
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Who should review apartment-building loan guarantees?
A qualified real-estate attorney should review the guarantees, carve-outs, covenants and security documents because their scope is contract-specific. Your accountant or financial adviser can separately assess tax, liquidity and entity-structure implications.
