Commercial real estate calculator

Calculating the cost of a commercial real estate loan involves understanding several key factors, including the loan amount, interest rate, loan term, and any additional fees. Here’s a detailed guide on how to compute the total cost of a commercial real estate loan:

Elements in calculating a commercial real estate loan

1. Loan amount: The principal amount borrowed to purchase the property.
2. Interest rate: The annual interest rate charged on the loan.
3. Loan term: The duration over which the loan is to be repaid.
4. Monthly loan payment: The amount paid monthly, which includes both principal and interest.
5. Total interest paid: The total amount of interest paid over the life of the loan.
6. Additional fees: Fees such as origination fees, closing costs, appraisal fees, and other related expenses.

Step-by-step calculation

1. Monthly loan payment

The monthly loan payment can be calculated using the formula for a fixed-rate mortgage:

M = P * [ r(1 + r)^n / (1 + r)^n – 1 ]

Where:

• M = Monthly payment
• P = Loan amount (principal)
• r = Monthly interest rate (annual interest rate divided by 12)
• n = Total number of payments (loan term in years multiplied by 12)

2. Total interest paid

Total interest paid over the life of the loan can be calculated by multiplying the monthly payment by the total number of payments and then subtracting the principal:

Total interest = (M * n) – P

3. Additional fees

Add any additional fees to the total interest to get the overall cost of the loan.

Example calculation

Given:

• Loan amount (P): $400,000
• Annual interest rate: 5%
• Loan term: 20 years
• Additional fees: $5,000

Step-by-step calculations:

1. Convert annual interest rate to Monthly interest rate:

r = 5% / 12 = 0.05 / 12 = 0.004167

2. Calculate total number of payments:

n = 20 * 12 = 240

3. Calculate monthly payment:

M = $400,000 * [ 0.004167(1 + 0.004167)^240 / (1 + 0.004167)^240 – 1 ]

Using a financial calculator or spreadsheet for the above formula:

M ≈ $2,640.33

4. Calculate total interest paid:

Total interest = (M * n) – P Total Interest = ($2,640.33 * 240) – $400,000

Total interest ≈ $634,679.20 – $400,000

Total interest ≈ $234,679.20

5. Calculate the total cost of the loan:

Total cost = Principal + Total Interest + Additional fees total cost = $400,000 + $234,679.20 + $5,000

Total cost = $639,679.20

Conclusion

The total cost of the commercial real estate loan in this example is approximately $639,679.20. This includes the principal amount, total interest paid over the life of the loan, and additional fees.