How the comparison works
Each quote is run month by month over the hold you enter. Interest follows the interest-only period and then the amortization schedule. Upfront costs are the origination fee, other lender fees and the rate cap. At the end of the hold, the remaining balance is repaid along with any exit fee or prepayment cost, and an extension fee is added for each year the hold runs past the initial term.
The effective annual cost is the interest rate that makes the money you receive at closing equal to everything you pay back, so quotes with different fees and loan amounts can be ranked on one number. Reserves the lender holds are left out of the cost because they come back to you, but they reduce the cash you receive at closing.
What to look for beyond the rate
- Exit and prepayment cost. A 1% exit fee on a 24-month hold is worth about 50 basis points a year of rate. See what an exit fee is.
- Rate cap requirements. The strike and term the lender requires set the cap price, and a new cap is needed for each extension. See what a rate cap costs.
- Extension tests. An extension that depends on a debt yield the property will not reach is not a real extension. See extension options.
- Recourse and carve-outs. Two quotes with the same cost can carry very different personal exposure. See carve-outs worth negotiating.
- Certainty of close. A quote that is retraded after the appraisal costs more than any spread difference. See what causes a retrade and comparing letters of intent.
Frequently asked questions
How do I compare two commercial loan term sheets?
Put both on the same hold period and add up everything you pay: interest, origination, lender fees, the rate cap, exit or prepayment costs and extension fees. Then compare the effective annual cost, which accounts for the timing of each payment, along with recourse and certainty of close.
Is the lowest interest rate the cheapest loan?
Not always. A lower spread with a 1% exit fee, a higher origination fee or a more expensive cap requirement can cost more over a two- or three-year hold than a slightly higher spread without them.
What SOFR should I assume for floating-rate quotes?
The starting value is hypothetical. Enter the rate for the index specified in your quote, then test higher and lower assumptions. Check the cap terms separately; this comparison does not model a hedge payout.
Does the tool include reserves?
Reserves reduce the cash you receive at closing, so they are shown there. They are not counted as a cost because the lender releases them as the work is done or at payoff.