What Is An Amortising Commercial Mortgage?

When you amortise a debt, it means you make regular capital repayments to reduce or pay off the loan. So with an amortising commercial mortgage you make payments towards the outstanding balance as well as the interest.

Typically with commercial mortgages you make the capital repayments over a fixed term of 10 to 30 years. Some banks offer a part amortising repayment profile, where you pay off some of the capital over the term rather than all of it, for example 50% instead of 100%.

It is also possible to service interest only on a commercial mortgage. That would be a non-amortising commercial mortgage.

Why the profile matters as much as the rate

The repayment profile drives the monthly payment far more than the interest rate does. A £500,000 loan at the same rate costs roughly twice as much a month on a 15 year full amortisation as it does on a 25 year one, and several times more than interest only.

That feeds straight into affordability. Lenders test whether rental income or trading profit covers the payment, so a shorter amortisation period can make an otherwise workable deal fail the test. Stretching the term to 25 or 30 years is often the difference between an offer and a decline.

Part amortising is the common compromise on investment property. You reduce the balance meaningfully over the term while keeping payments manageable, and refinance or sell to clear the residual. The risk sits at the end: a part amortising or interest only loan leaves a balloon payment due on expiry, and the exit needs to be credible at the outset rather than assumed.

Related terms

See also balloon payment, the lump sum due at the end of a part amortising or interest only loan, and DSCR, the debt service cover ratio lenders use to test affordability.

For rates, loan to values, lender types and how to apply, see commercial mortgages.

Bolton Business Finance is a whole of market commercial finance broker. Call 0161 546 9128.

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