Amortization

In commercial real estate, the amortization period is the timeline used to calculate loan payments, and it is often different from the loan term itself. A loan might carry a 25-year amortization but a 10-year term, meaning payments are calculated as if the loan runs 25 years, but a balloon payment of the remaining balance comes due at year 10. A longer amortization lowers each monthly payment — improving debt service coverage — but means the borrower pays more interest overall and builds equity more slowly. Early in an amortization schedule, most of each payment goes toward interest; over time the balance shifts toward principal. For a practice weighing whether to buy, amortization is central to the lease-versus-buy math: the principal portion of each payment builds the owner's equity, effectively converting an expense into an asset.

Amortization shapes both affordability and wealth-building. A longer schedule eases cash flow; a shorter one builds equity faster. For an owner-occupant, the principal paid each month is equity that leasing never creates.

A $1,600,000 loan at 7% amortized over 25 years carries a monthly payment near $11,300. Over 20 years, the same loan's payment rises to about $12,400 — higher monthly cost, but faster equity buildup and less total interest.