Amortization

Amortization: What the Market Actually Requires

Amortization is a sizing lever before it is a repayment schedule. Because most permanent lenders size proceeds to a minimum DSCR, the amortization period directly controls how much they can lend: a longer schedule means a lower annual payment, which means the same NOI supports more debt. When a deal is DSCR-constrained rather than LTV-constrained, moving from a 25-year to a 30-year schedule routinely adds 5% or more to proceeds without changing anything about the property.

Conventions differ sharply by capital source. Banks anchor on 25-year schedules and drop to 20 years for older or specialty assets. Agency lenders quote 30 years as standard on multifamily, and HUD-insured executions run fully amortizing schedules of up to 35 years on refinances and 40 years on new construction, the longest paper in the market. CMBS typically pairs a 30-year schedule with partial or full interest-only periods. Life insurance companies are the most conservative, often preferring 25-year schedules or even fully amortizing 15 to 20 year structures on low-leverage deals for borrowers who want the debt retired. Bridge lenders and debt funds skip amortization entirely and lend interest-only, because their loans exit through a sale or refinance, not through paydown.

The common borrower mistake runs in both directions. Some sponsors take the shortest schedule offered to build equity faster, then discover the higher payment caps their proceeds and starves cash flow during lease-up or capital projects. Others maximize amortization without noticing the balloon: a 10-year loan on a 30-year schedule still leaves roughly 85% of the principal outstanding at maturity. The professional move is to treat amortization, interest-only time, and the loan constant as one package, and to negotiate the schedule that matches the hold period and the business plan rather than defaulting to whatever the term sheet says.

Why It Matters for Your Loan

Amortization determines your annual debt service, and debt service determines both your DSCR-constrained proceeds and your cash-on-cash return. On a $10,000,000 loan, five extra years of amortization can free tens of thousands of dollars of annual cash flow or add several hundred thousand dollars of proceeds. Commercial Lending Solutions structures every request around the amortization each capital source will actually approve, so the schedule works for the business plan instead of against it.