Simple Interest Commercial Loan Amortization

In previous commercial loan amortizations I have used the standard 30/360 basis, compound interest amortization. More often than not, lenders will use simple interest for commercial loans. Don’t let the word simple in “simple interest” vs “compound interest” fool you.  Lenders are not looking to give borrowers a cheaper loan, based on simple interest. Chances are the borrower will pay more for a simple interest loan than the traditional compound interest loan. For a good explanation of how this might happen, follow this link to the “Mortgage Professor”:

Also, for an explanation of the difference between simple and compound interest, again the “Mortgage Professor” gives a good explanation:

The Excel spreadsheet starts with the input cells in yellow.

I used the standard payment formula in Excel, =PMT(). This function works fine for standard mortgage loans, but for simple interest loans, the actual last payment will most likely differ from the expected final term.

I give the above warning on the spreadsheet, however, although the typical commercial loan will be amortized over a longer period of time (i.e. 30 years), they usually have a balloon payment in 3, 5, 10, etc. years. Therefore, the final payment after, for example 30 years, will never be reached.

I break out the payments into the total term and the balloon term. In the default example, the balloon is due in 5 years (60 months).

Download: SICLA


Don Pistulka
Don Pistulka

Retired Credit Union CFO - Finance
Background: over 40 years in investments, asset/Liability management, banking, securities trader.
Worked for: California Credit Union, WesCorp, CalFed S&L, Crocker Bank, Carroll McEntee, Federal Home Loan Bank Board (D.C.), Western Asset Management, Security Pacific National Bank.

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