How commercial mortgage repayments are actually calculated
A calculator gives you one number. This guide shows the sums behind it: the loan, the rate, the term and the repayment type, plus the rent or profit test that decides how much a lender will lend in the first place. Every figure is worked through, so you can check any quote yourself.
The four numbers that set the payment
Every commercial mortgage payment comes from four inputs. Change any one and the monthly figure moves.
- The loan amount. Capped by loan-to-value (LTV): typically 70% to 75% of the property's value for an owner-occupier, 65% to 70% for an investment property let to a tenant.
- The interest rate. Typically 6% to 10% in 2026, depending on the lender, the property and the borrower. How rates are set.
- The term. Usually up to 20 or 25 years. The longer the term, the lower the payment and the more interest you pay overall.
- The repayment type. Capital repayment (the loan is cleared by the end), interest-only (it isn't), or part-and-part (a mix).
Interest-only: the simple sum
Interest-only is one line of arithmetic: loan × annual rate ÷ 12.
Example: £400,000 interest-only at 7.5%
£400,000 × 7.5% = £30,000 a year, or £2,500 a month.
After 20 years you will have paid £600,000 in interest and still owe the full £400,000. That is why lenders want to see how the loan will be repaid: a sale, a refinance, or a pension or other assets.
Capital repayment: the formula
On a repayment mortgage the payment is set so that, at the given rate, the loan is cleared exactly over the term. It is the same formula used for house mortgages:
Monthly payment = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P is the loan amount
- r is the monthly interest rate: the annual rate ÷ 12 (7.5% becomes 0.00625)
- n is the number of monthly payments: years × 12 (20 years is 240)
£400,000 at 7.5% over 20 years: £3,222.37 a month.
In the first month, £2,500 of that payment is interest (the same as interest-only) and only £722.37 reduces the loan. Each month the balance falls slightly, so slightly less goes on interest and slightly more on capital. The split shifts slowly: after five years you will have paid in about £193,300 but the balance will only have dropped to about £347,600. Most of the capital is paid off in the second half of the term.
How the term changes the payment
Same £400,000 at 7.5%, repayment basis:
| Term | Monthly payment | Total interest |
|---|---|---|
| 15 years | £3,708 | £267,449 |
| 20 years | £3,222 | £373,369 |
| 25 years | £2,956 | £486,789 |
Stretching from 20 to 25 years saves about £266 a month but adds about £113,400 of interest. A longer term can also help you pass the lender's affordability test (see below), and most lenders let you overpay, so it can be worth taking the longer term and paying more when the business can.
How the rate changes the payment
£400,000 over 20 years, repayment basis:
| Rate | Monthly payment | Total interest |
|---|---|---|
| 6.5% | £2,982 | £315,750 |
| 7.5% | £3,222 | £373,369 |
| 8.5% | £3,471 | £433,110 |
Each percentage point is worth roughly £240 to £250 a month on this loan. On a variable rate (base rate plus a margin) the payment is recalculated whenever base rate moves, so it is worth running the sum a point or two higher to see what you could live with.
Part-and-part
Some lenders let you split the loan: part on interest-only, part on repayment. Each part is worked out separately and added together. £400,000 at 7.5% over 20 years, half and half: £1,250 interest-only on £200,000 plus £1,611.19 repayment on the other £200,000 makes £2,861 a month, with £200,000 still owed at the end.
Fees added to the loan
Arrangement fees are often 1% to 2% and can usually be added to the loan rather than paid up front. A 2% fee on £400,000 is £8,000, so you borrow £408,000 and the payment rises to £3,286.82, about £64 a month more. You also pay interest on the fee for the whole term. The full list of fees and costs.
The other half: how much the lender will lend
Working out the payment is the easy part. The lender also runs a cover test to decide the maximum loan, and then caps it by loan-to-value. Whichever limit is lower is what you can borrow.
Owner-occupier: profit cover
If your business will trade from the property, the lender checks that the business's profit comfortably covers the mortgage payments. The test is adjusted net profit ÷ annual mortgage payments, and most lenders want 1.25 to 1.5. Adjusted profit is profit before tax after directors' pay, with depreciation added back and the rent you will stop paying added back. How to work out EBITDA and adjusted profit.
Example: owner-occupier
Adjusted profit £120,000. Lender wants cover of 1.35.
Maximum annual payments: £120,000 ÷ 1.35 = £88,889, or about £7,407 a month. At 7.5% over 20 years, that would support a loan of about £919,500.
But the premises are worth £650,000 and the lender's maximum is 75% LTV: £487,500. Loan-to-value is the limit here, and the deposit needed is £162,500 plus costs.
Investment property: rental interest cover
If the property is let to a tenant, the lender tests the rent against the interest, usually at a stress rate one to two points above the actual rate. The test is annual rent ÷ annual interest at the stress rate, and lenders typically want 125% to 145%.
Example: investment property
Rent £45,000 a year. Lender wants 140% cover at a stress rate of 8.5% (actual rate 7.5% plus one point).
Maximum annual interest: £45,000 ÷ 1.40 = £32,143. Maximum loan: £32,143 ÷ 8.5% = about £378,000.
The property is worth £600,000 and the LTV cap of 70% would allow £420,000. The rent is the limit here: about £378,000, or 63% LTV. The actual interest-only payment at 7.5% would be about £2,363 a month.
This is why a valuable property with a low rent often can't borrow the full loan-to-value. The rent, not the price, decides the loan. A longer lease, a stronger tenant or a rent review before you apply can all change the answer.
Remortgaging: the same maths, a few extra checks
A commercial remortgage is worked out exactly the same way. The loan is your existing balance, plus any money you want to raise, plus any fees you add. The term is whatever is left or whatever the new lender will offer.
Example: remortgage and raise capital
You owe £300,000 with 18 years left, and the property is now worth £550,000.
Like for like at 7% over 18 years: £2,446.51 a month.
Raise an extra £50,000 for the business, taking the loan to £350,000 (64% LTV): £2,854.26 a month, about £408 more.
Before you switch, check for early repayment charges on your current loan, budget for valuation and legal fees, and remember the new lender will rerun the rent or profit test at today's rates. A loan that passed easily five years ago may not pass now. Commercial remortgages and capital raising.
What a calculator figure leaves out
- Rate changes. On a variable rate, the payment moves with base rate. On a fixed rate, it moves when the fix ends.
- Fees. Arrangement, valuation, legal and broker fees, unless you add them to the loan.
- Early repayment charges. Common on fixed rates, often a sliding percentage over the first few years.
- Lender quirks. Some lenders charge interest daily, take payments quarterly, or allow a capital repayment holiday at the start.
- Insurance and tax. Some lenders require life or key-person cover. How the interest is treated for tax depends on how you own the property: ask your accountant.
How to check a quote in three minutes
- Do the interest-only sum: loan × rate ÷ 12. On a repayment quote the payment should be higher than this; on an interest-only quote it should match.
- Put the loan, rate and term into the commercial mortgage calculator. The answer should be within a few pounds of the quote.
- If the quote is higher, ask why: fees added to the loan, a shorter term, or a different rate from the one you were told.
- Ask for the total amount repayable over the term, including fees. It is the easiest number to compare between lenders.
Run your own numbers. The commercial mortgage calculator works out the monthly payment, total interest and balance at the end, on repayment or interest-only. The how much can I borrow calculator runs the profit and rent tests above. Both are free, with no sign-up.
A note on the numbers. Rates, loan-to-value limits, fees and criteria are typical figures at the time of writing (2026). Commercial lending is priced case by case, so your own terms depend on the property, the business, the tenant and you. This is information, not advice, and not an offer of finance.
Quick answers
How do I calculate a commercial mortgage payment myself?
For interest-only, multiply the loan by the annual rate and divide by 12. For capital repayment, use the standard formula: loan × r × (1 + r)^n ÷ ((1 + r)^n − 1), where r is the annual rate divided by 12 and n is the number of months. £400,000 at 7.5% over 20 years comes to £3,222.37 a month.
Is a commercial mortgage calculated differently from a residential one?
The payment maths is the same. What differs is the inputs and the lending test: rates are usually higher, terms are often shorter, and the maximum loan is set by the business's profit or the tenant's rent as well as by loan-to-value.
How is a commercial remortgage calculated?
The same way as a new loan. The amount is your current balance plus any capital you are raising and any fees added; the term is the remaining or new term. The new lender will also rerun the rent or profit cover test at current rates.
What interest rate should I use in a commercial mortgage calculator?
Rates are typically 6% to 10% in 2026. If you are not sure, run the sum at 7.5% and again at 9% to see a realistic range, and add a point or two if you are looking at a variable rate.
Why is the lender's payment different from the calculator?
Usually because fees have been added to the loan, the term is different, interest is charged daily, or payments are taken quarterly. Ask the lender or adviser to show how their figure is worked out.
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