Permanent loan is long-term, first-mortgage financing placed on a stabilized commercial property once it produces reliable cash flow. It usually carries a 5 to 10 year term with a 20 to 30 year amortization, leaving a balloon balance at maturity. Because the lender underwrites in-place income, it prices low and rewards stability.
How Does a Permanent Loan Work?
A permanent loan works by financing a property that already performs, sized to its current cash flow rather than a future business plan. The lender records a first-lien mortgage and sets a term, an amortization schedule, and coverage covenants. Payments cover principal and interest, but the amortization is longer than the term, so a balloon balance remains due at maturity.
Per Biz2Credit and ComCap Holdings, permanent loans commonly run a 5 to 10 year term paired with a 20 to 30 year amortization, which lowers the monthly payment while leaving a balloon to refinance or repay at the end. A 10 year term amortized over 25 years, for example, pays down only part of the principal before the balloon comes due.
Term | Representative treatment (2026) |
Loan term | 5 to 10 years |
Amortization | 20 to 30 years |
Payment | Principal and interest, balloon at maturity |
Lien position | First mortgage |
Underwriting basis | In-place stabilized cash flow |
Per PeerSense and SelectCommercial, permanent loan rates in July 2026 for 10 year fixed CMBS conduit debt range from roughly 5.50% for multifamily and industrial to about 7.10% for office, over a 10 year Treasury near 4.38%. Lenders require a minimum debt service coverage ratio, commonly 1.25x for CMBS and 1.30x or higher for life companies, and a debt yield at or above 8% is difficult to clear below.
Why Permanent Loans Matter
Permanent loans matter because they are the cheapest, longest financing a property can hold, and they are the takeout that repays short-term debt. A sponsor who buys and stabilizes an asset with a bridge loan exits into permanent financing, locking a low fixed rate for years. The permanent loan is the resting state of the capital stack, the debt a stabilized asset carries between transactions.
Per PeerSense, life companies and agencies will not clear a debt service coverage ratio under 1.25x or a debt yield under 8% on most permanent debt in 2026, so the loan is only available once the property genuinely performs. That gate is the point: permanent debt rewards a completed business plan with a low rate and a long term, while punishing an incomplete one with a denial or a smaller loan.
The quotable point for an operator: a permanent loan is priced for certainty, so the property must earn the loan before the loan can carry the property.
Example
A stabilized multifamily property produces $650,000 in net operating income and appraises at $10,000,000. A life company offers a permanent loan at 60% loan-to-value, or $6,000,000, at a 6% rate on a 10 year term amortized over 30 years, requiring a 1.25x debt service coverage ratio.
Item | Calculation | Result |
Net operating income | Given | $650,000 |
Loan amount | 60% x $10,000,000 | $6,000,000 |
Annual debt service | 30 year amort, 6%, $6,000,000 | about $431,700 |
Debt service coverage ratio | $650,000 / $431,700 | about 1.51x |
Debt yield | $650,000 / $6,000,000 | 10.8% |
The 1.51x coverage clears the 1.25x minimum and the 10.8% debt yield clears the 8% floor, so the loan is well supported. Over the 10 year term the 30 year amortization pays down only part of the balance, leaving a balloon near $5,000,000 due at maturity. The sponsor plans to refinance or sell before that balloon comes due, which is the standard exit on permanent debt.
Variations and Edge Cases
Permanent loans are not uniform: lender type, rate structure, and prepayment terms shift the economics. The same stabilized asset can draw very different quotes from a bank, a life company, an agency, or a CMBS conduit. The table below covers the variants an operator should confirm before locking a rate.
Variant | Treatment |
Lender type | Banks, life companies, agencies, and CMBS conduits price and cap leverage differently |
Fixed vs floating | Most permanent debt fixes the rate for the term; some banks float |
Amortization length | Longer amortization lowers payments but leaves a larger balloon |
Prepayment penalty | CMBS defeasance and yield maintenance can make early payoff costly |
Recourse | Agency and CMBS loans are often non-recourse; bank loans may require recourse |
The most common mistake is ignoring the balloon and the prepayment terms. A 10 year loan amortized over 30 years leaves most of the principal outstanding at maturity, and a CMBS loan can carry a steep defeasance cost to exit early. The refinance or sale that repays the balloon should be planned when the loan closes, and the prepayment penalty should be modeled before an early exit is assumed.
Permanent Loan vs Construction Loan
Permanent loan is often confused with a construction loan, and both finance commercial property, but they fund opposite phases. A permanent loan is long-term financing on a completed, stabilized property, fully funded at close and repaid over years. A construction loan is short-term financing that funds the building of a property, drawn in stages against completed work.
The practical difference is disbursement and underwriting. A construction loan releases funds on a draw schedule tied to project milestones, often interest-only, and underwrites to a projected finished value. A permanent loan funds in full at close, amortizes principal and interest, and underwrites to actual in-place cash flow. The permanent loan is frequently the takeout that repays the construction loan once the property stabilizes.
Frequently Asked Questions
What is a permanent loan in commercial real estate?A permanent loan in commercial real estate is long-term, first-mortgage financing placed on a stabilized property once it produces reliable cash flow. It typically carries a 5 to 10 year term with a 20 to 30 year amortization, leaving a balloon balance at maturity, and is underwritten to in-place income.
What are typical permanent loan terms and rates?Permanent loans typically run a 5 to 10 year term with a 20 to 30 year amortization. In July 2026, 10 year fixed CMBS conduit rates range from roughly 5.50% for multifamily and industrial to about 7.10% for office, over a 10 year Treasury near 4.38%, per PeerSense and SelectCommercial.
What DSCR does a permanent loan require?Permanent loans commonly require a minimum debt service coverage ratio of 1.25x for CMBS conduit debt and 1.30x or higher for life companies. Lenders also look for a debt yield at or above 8%, and a property that falls below these thresholds usually gets a worse rate or a smaller loan in 2026.
How is a permanent loan different from a bridge loan?A permanent loan is long-term financing on a stabilized property, sized to in-place cash flow and priced low, while a bridge loan is short-term financing on a transitional property, sized to future value and priced high. Sponsors often use a bridge loan to reposition an asset, then refinance into a permanent loan at exit.
Related Terms
Senior Debt
Bridge Loan
Debt Service Coverage Ratio
Loan to Value Ratio
Debt Yield