Loan comparison calculator
The headline interest rate is only part of a loan's true cost. Origination fees, exit fees, interest-only periods, and prepayment penalties can make a lower-rate loan more expensive over your hold period. Enter two quotes to compare effective annual cost and total dollars paid.
Quote A
Quote B
Quote B is cheaper by $62,020 over a 5-year hold — despite carrying the higher nominal rate.
Comparison assumes a standard 5-year hold. If a loan's term is shorter than 5 years, this assumes it is extended or refinanced at maturity on similar terms.
Quote A
Quote B
CheaperWhy the lower rate isn't always cheaper
Three factors routinely flip the ranking between two quotes that look similar on paper:
| Factor | Why it matters |
|---|---|
| Origination & exit fees | Charged as a percentage of loan amount regardless of rate — a 2% fee on a $5M loan is $100,000 upfront |
| Interest-only period | Lowers near-term payments but leaves more principal outstanding, increasing total interest over the hold |
| Prepayment penalty | A step-down or yield-maintenance charge can add a large one-time cost if you exit before the penalty period ends |
Once you've settled on a loan amount, use the commercial mortgage calculator to see the exact payment schedule and balloon balance for your chosen quote.
Frequently asked questions
Why isn't the lowest interest rate always the cheapest loan?
Origination fees, exit fees, and prepayment penalties add cost on top of the note rate. A loan with a lower rate but a 2.5% origination fee and a step-down prepayment penalty can cost more over a typical hold period than a loan with a slightly higher rate and minimal fees.
What is "effective annual cost" and how does it differ from the note rate?
Effective annual cost spreads all interest and fees over the analysis period and expresses the total as an annualized percentage of the loan amount. It's always at or above the note rate, since fees only add cost — it's the number to compare, not the headline rate on a term sheet.
How do prepayment penalties affect the true cost of a loan?
A step-down penalty (e.g., 5-4-3-2-1) charges a declining percentage of the balance if you prepay in the early years, while yield maintenance charges a make-whole amount tied to the rate differential. Either can add a large one-time cost if you sell or refinance sooner than planned — factor in your likely hold period, not just the stated term.
Why do you compare loans over a 5-year hold period?
Five years is a common underwriting convention in commercial real estate — long enough to smooth out short-term rate noise, short enough to reflect how most CRE investors actually hold and refinance. If a loan's term is shorter than 5 years, the comparison assumes it's extended or refinanced on similar terms.
How does an interest-only period change total loan cost?
An IO period lowers the payment in the near term because no principal is paid down, but it means more principal remains outstanding for longer, which increases total interest paid over the hold period compared to an equivalent loan that starts amortizing immediately.
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