What Is a Fully-Amortizing Payment?

By: Alejandra Torres

Wondering if you should obtain a fully-amortizing loan for your commercial property, but not sure what this means? Allow us to explain. Despite the intimidating name, a fully-amortizing loan is actually quite simple.

When applying for a commercial loan, borrowers can choose from either: (a) an interest-only mortgage loan or (b) a fully-amortizing mortgage loan. For many small business owners, an interest-only loan is a good option because of the low interest-only monthly payments, while a fully-amortizing loan allows investors to spread out the monthly payments of principal and interest over a longer period of time (say 15, 25, or 30 years).

Before committing to a fully-amortizing loan, prep yourself on both the benefits and disadvantages because if you’re reading this, chances are you will be applying for a loan in the near future!


Fully-Amortizing Loans Fully Explained

A fully-amortizing loan is essentially a mortgage that consists of a series of monthly payments that will pay off the mortgage in its entirety by the end of the loan term. These payments are broken up into two parts—principal and interest. Principal can be described as the money an investor borrowed from a lender, while the interest is the cost for borrowing said money.

There are also two types of rates you can get with these loans—fixed-rate and adjustable-rate. If a small business owner chooses a fixed rate mortgage, the amount of the amortizing monthly payments stays the same amount throughout the duration of the loan, from beginning to end.

On the other hand, monthly payments for an adjustable-rate mortgage can fluctuate and go from low to high, or vice versa, on a monthly or even yearly basis. The monthly payment is dependent on the applicable interest rate and ultimately, the market.


Who Are They For?

Since a fully-amortizing loan is a big commitment, it’s a smart option for investors who have a long-term plan for their commercial properties.  An advantage is that the borrower has the opportunity to pay the same amount each month, meaning they’re not surprised with rising costs during the term.

Unlike an interest-only loan, monthly payments on a fully-amortizing loan go towards both the interest and principal. Consequently, investors may begin to build equity on their commercial properties ASAP.

Equity is key for many small business owners, especially those who are confident in their commercial property’s future.


You Might Want to Avoid If…

You’re an investor who doesn’t like to plan long-term and instead prefers more flexibility. Borrowers who expect to sell the property in the near future may benefit from an interest-only loan because they can make lower payments during the interest-only period and choose to refinance or perhaps sell the commercial space before the amortizing period kicks in.

Alternatively, a borrower who is starting a new business and is in need of more cash-flow in order to kick start their company, may prefer an interest-only loan rather than commit to amortizing payments from the start.

During this period, borrowers can focus on funding the various projects surrounding their recent commercial purchase.


Thank You, Next!

Whatever loan solution you decide on, let Commercial Direct, a division of Silver Hill Funding, LLC, guide you on your commercial property financing options. Unlike a traditional bank lender, our loan programs offer more flexibility and many of our loan programs don’t require the same amount of documentation to get borrowers approved. To learn more about the next steps in your mortgage journey, visit our purchase page today!

Silver Hill Funding, LLC and its successors and/or assigns as their interest may appear, is the proposed lender. Commercial Direct is a division of Silver Hill Funding, LLC.


Author: Alejandra Torres

As the Content Specialist at Commercial Direct, Alejandra Torres writes and educates readers on all things business. When she’s not breaking down the steps to obtaining a commercial mortgage, you can catch her reading up on the latest market trends or watching the next big business venture on Shark Tank.

Fees to Expect When Financing Your Commercial Loan

Don’t let lender fees catch you off guard – here are all the fees you can expect from submission to closing.

3 Benefits of Working with a Direct Lender

Faster closings and more flexibility are just a couple ways partnering with a direct lender can be beneficial for your next commercial loan.

3 Commercial Loan Underwriting Basics You Should Know

LTV? DSCR? NOI? We break down a few underwriting terms to help you better understand the commercial mortgage transaction process.