Loan Term Length Options

Smaller monthly loan payments feel safer, right? Until the future you,is drowning in never-ending interest. I recall a client once saying, “I always choose the longest loan term possible so my payments are lower. I don’t want to feel stretched every month.” And I get it. Smaller monthly payments feel safer even more comfortable. But the problem is, the longer the loan period, which translates to a lower monthly payment, the more you lose money in interest. And here’s an even bigger problem: Our brains are naturally wired to prioritize short-term comfort over long-term consequences. A phenomenon called "temporal discounting"—our natural tendency to undervalue future pain in favor of present relief. Ideally imagining that; 💡 Future-you is just some stranger who can “figure it out.” 💡 Future—you will magically have more money. 💡 Future-you won’t mind paying an extra KES 300K in interest payments! Except future-you is still you—just with more debt and less time to fix it🫢 Let’s run the numbers for a Kes 1M loan. (for illustration purposes) 📌 Option 1: 3-Year Loan (Short-Term) Interest rate: 14% per annum Loan Period: 3 years Monthly payment: KES 34,178 Total interest paid: KES 230,397 Total repayment of the loan: KES 1,230,397 📌 Option 2: 7-Year Loan (Long-Term) Interest rate: 14% per annum Loan period: 7 years. Monthly payment: KES 18,740 Total interest paid: KES 574,162 Total repayment of the loan: KES 1,574,162 So, what’s at stake here? ✅ Shorter Loan (3 Years): -Higher monthly payments now -Saves KES 343,765 in interest -Clears debt faster. ✅ Longer Loan (7 Years): -Lower monthly payments now -Costs nearly 3 times more in interest -Extra KES 343,765 lost over time So this is how to make a smarter choice today: 💡 Go for the 3-year loan IF: ✔️ You can afford slightly higher payments ✔️ You want to clear the debt fast ✔️ You want to save on interest 💡 Consider the 7-year loan IF: ✔️ You need lower payments for flexibility ✔️ You have other pressing financial commitments ✔️ You have a firm plan in place to make extra payments that reduce the interest overtime. Finally, remember this: Short-term pain = long-term gain. Long-term relief = long-term regret. ✅ Pay faster, save money. ✅ Stretch it out, pay more. Future, you will thank you. Now let's chat,what’s one financial decision you wish you had made sooner instead of postponing it to the future?

The other day, I was working with a new investor, and an interesting point came up. I mentioned that his loan term would likely be 10 to 15 years. He was surprised, expecting a 30-year term like in residential mortgages. This is a common misconception. In commercial real estate, especially for investment properties, we don't typically have 30-year loans. Instead, we often have a shorter term, like 10 or 15 years, with a longer amortization period, such as 20 or 25 years. This means you make payments as if the loan were longer, but the term itself is shorter. At the end of the term, you face a balloon payment, meaning you need to refinance or pay off the remaining balance. Additionally, commercial loans can have fixed or variable interest rates. A fixed rate remains constant, while a variable rate can fluctuate over time, impacting your payments. It's crucial to include these variables in your financial analysis when planning your investments. If you're working with an agent, ensure they collaborate with a knowledgeable lender, ideally both being CCIM. This certification ensures they have the expertise to guide you through the process. Remember, commercial lending is vastly different from residential. 

I recently reviewed a term sheet where the lender offered two options. Same deal. Same property. But two different loan structures. Here’s what they proposed: Option 1: * 30-year amortization * 70% Loan-to-Value * Lower monthly payments * More equity required up front Option 2: * 25-year amortization * 75% Loan-to-Value * Higher monthly payments * Less equity required up front Both had: 6.50% fixed rate for the first 5 years Same prepayment structure The difference came down to strategy. Option 1 favors long-term cash flow. Option 2 favors leverage and lower upfront capital. It was a great reminder that lenders don’t just offer “yes” or “no” sometimes they give you a smart choice. The best option depends on your game plan. How do you typically evaluate trade-offs like this? No right or wrong answer here it's all about what fits YOUR business plan!!