A long-term commercial mortgage loan in which all payments of principal and interest are deferred until maturity. In this loan, which is structured as an accrual note, interest due is rolled into the outstanding principal. Principal owed increases over time as interest that was due is added to the previous amount, and so on. At maturity, the borrower (mortgage holder) must either pay off the note or refinance at prevailing interest rates. This structure can beneficial for both parties. The lender receives a discounted internal rate of return, while the borrower can finance a commercial property with a lesser cost, on the expectation that appreciation of the property value over the mortgage life would be sufficient to pay off the loan.
July 10, 2024
