Amortization

Amortization in commercial real estate refers to the gradual repayment of a loan through scheduled, periodic payments that cover both principal and interest over the life of the loan. With each payment, a greater portion goes toward reducing the principal balance as the interest portion decreases.

In CRE underwriting, the amortization schedule affects a property’s cash flow projections and debt service coverage ratio (DSCR). Loans may be fully amortizing or structured with a balloon payment, where the remaining balance is due at the end of a shorter loan term despite a longer amortization period.