A commercial mortgage from a life insurance company, a bank or a CMBS lender can look alike on a term sheet, but the pros and cons of each trace back to where the lender's money comes from and who holds your loan after closing. A bank lends largely from deposits and usually keeps the loan, a life insurer invests premiums it will pay out decades from now, and a CMBS lender sells your loan into a bond trust run by servicers. Below, we cover each one with federal rules and data, then price three hypothetical quotes on a $3 million retail strip center, including the cost of an early payoff.
Where banks, CMBS lenders and life insurance companies get their money
The Federal Reserve's Financial Accounts of the United States (Z.1), released September 11, 2026, show who held U.S. commercial mortgages at the end of the second quarter of 2026 (table F4.5c.s). Multifamily mortgages sit in a separate table, so apartment loans aren't in these figures.
| Holder | Commercial mortgages held, Q2 2026 | Share of $4,011.5 billion |
|---|---|---|
| U.S.-chartered depository institutions | $2,252.2 billion | 56.1% |
| ABS issuers (securitized pools, including CMBS) | $527.1 billion | 13.1% |
| Life insurance companies | $513.0 billion | 12.8% |
| Mortgage REITs | $154.8 billion | 3.9% |
A bank funding loans with deposits tends to prefer loans that mature or reprice within a few years. A life insurer matching policy obligations that run for decades tends to want long fixed-rate loans on low-risk property, and it prices early payoff to protect its yield. A CMBS lender, often called a conduit, makes loans in order to sell them into a trust that issues bonds, so your loan has to fit terms that bond investors will buy.
How a CMBS loan works, from the pool to defeasance
The sponsor of a securitization generally has to keep at least 5% of the credit risk under the federal credit risk retention rule (17 CFR 246.4). For CMBS, up to two third-party purchasers can hold some or all of that risk instead, in the most subordinated class, if, among other conditions, each pays cash at closing and independently reviews every loan's underwriting standards, collateral and expected cash flows before the bonds are sold (17 CFR 246.7). So an investor who takes the first losses reads your loan file.
After that, you deal with servicers working under the trust's servicing agreement. The rule describes a special servicer as one that takes over loans when conditions in that agreement occur, in practice usually a default or a likely one.
CMBS trusts commonly elect REMIC tax status. Under 26 CFR 1.860G-2, a significant modification of a loan held by a REMIC is treated as an exchange, and outside the listed exceptions the loan stops being a qualified mortgage and the trust faces a prohibited transaction. The exceptions include changes occasioned by default or a reasonably foreseeable default, an assumption of the loan, and a waiver of a due-on-sale clause. So a sale with a loan assumption is a recognized path, subject to servicer approval and fees, while renegotiating a performing loan is hard.
The same regulation allows defeasance: the borrower pledges substitute collateral consisting solely of government securities, the loan documents must allow it, the release must serve a sale or other customary commercial transaction, and it can't fall within two years of the REMIC's startup day. You buy securities that make your remaining payments, and the further Treasury yields sit below your loan rate, the more they cost. Some CMBS loans use yield maintenance instead.
CMBS loans are commonly nonrecourse apart from carve-out guarantees for listed acts such as fraud, unapproved transfers or a voluntary bankruptcy filing, so read that list as closely as a full personal guarantee. We found no federal rule that sets a minimum CMBS loan size. Each lender sets its own, and a loan near $2 million may fall below some lenders' floors, so ask before paying for reports.
What life insurance companies look for in a commercial mortgage
Life insurers lend from their own balance sheets and usually keep the loan, so you deal with the same institution, or its correspondent, for the whole term. Insurers answer to state insurance regulators, and the federal bank guidelines below don't apply to them. We found no official source for life company rates, loan-to-value limits or minimum loan sizes, so treat these as common practice that varies by company:
- Stabilized property that's well leased and well located. Vacancy or heavy lease rollover is a common reason to decline.
- Lower loan-to-value (LTV), which usually lifts the DSCR and debt yield above a CMBS loan on the same property.
- Long fixed rates, often 10 years or longer, with many insurers letting you lock the rate early.
- Yield maintenance on early payoff, often with a minimum, and many loans nonrecourse apart from carve-outs.
How bank commercial mortgages differ
Banks commonly ask for a personal guarantee, write shorter terms that end in a balloon, and may float the rate or fix it for part of the term. But a bank holding the loan can modify or extend it without a trust's tax rules in the way, and it's more likely to lend on a center that needs leasing or work.
The interagency real estate lending guidelines in 12 CFR part 34, subpart D say each bank should set internal loan-to-value limits that don't exceed the supervisory limits, which is 85% for improved property. A bank's policy should also set minimum standards for net worth, cash flow and debt service coverage and address "limits on partial recourse or nonrecourse loans and requirements for guarantor support." These guidelines shape bank policy rather than set your loan terms. The FDIC's version is 12 CFR part 365.
Under the OCC's appraisal rule (12 CFR 34.43), a commercial real estate transaction of $500,000 or less can use an evaluation instead of an appraisal. Above $500,000, a federally related transaction requires an appraisal by a State certified appraiser, so a $2 million strip center loan at a national bank will generally need one.
Life insurance company vs bank vs CMBS commercial mortgage: pros and cons in one example
Assumptions: an investor buys an existing retail strip center for $3,000,000, it appraises at the price, and net operating income is $225,000 a year. Every rate, LTV, term and prepayment clause below is an assumption, and none is a market quote.
| Assumed quote | Bank | CMBS | Life insurance company |
|---|---|---|---|
| Loan (LTV) | $2,100,000 (70%) | $2,250,000 (75%) | $1,800,000 (60%) |
| Cash down before closing costs | $900,000 | $750,000 | $1,200,000 |
| Rate and amortization | 6.75%, 25 years | 6.50%, 30 years | 6.00%, 25 years |
| Term | 5 years | 10 years | 10 years |
| Monthly payment | $14,509 | $14,222 | $11,597 |
| Annual debt service | $174,110 | $170,658 | $139,169 |
| DSCR | 1.29 | 1.32 | 1.62 |
| Debt yield | 10.7% | 10.0% | 12.5% |
| Balance due at maturity | $1,908,184 | $1,907,463 | $1,374,336 |
| Recourse | Personal guarantee | Carve-outs only | Carve-outs only |
| Early payoff | 3%, 2%, 1% in years 1 to 3, then none | Defeasance | Yield maintenance, 1% minimum |
DSCR is $225,000 divided by annual debt service, and debt yield is $225,000 divided by the loan. For a sale after 48 payments, we priced defeasance and yield maintenance by discounting the remaining 72 payments and the year-10 balance at one assumed Treasury yield and subtracting the loan balance. Real formulas and fees vary, so treat these as rough sizes.
| Sale after 48 payments | Bank | CMBS | Life insurance company |
|---|---|---|---|
| Loan balance | $1,951,877 | $2,138,840 | $1,659,485 |
| Prepayment cost, Treasury yields at 4.00% | $0 | $271,226 | $163,315 |
| Prepayment cost, Treasury yields at 7.25% | $0 | Securities cost $74,279 less than the balance, before fees | $16,595 (the 1% minimum) |
The CMBS loan is the largest, and the life company loan has the lowest payment and the most cushion. If you may sell or refinance in the first several years, the bank's prepayment terms can outweigh its higher rate, though its $1,908,184 balloon in year 5 has to be refinanced at whatever rates and values exist then. Line up real quotes the same way with our guide to comparing loan offers.
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| Your situation | Lender that often fits |
|---|---|
| You may sell, refinance or add debt within a few years | Bank, for step-down or no prepayment fees and room to modify |
| You want the most loan and limited personal liability for a hold to maturity | CMBS, if you accept defeasance and servicer rules |
| The property is stabilized and you can put more cash in for a long hold | Life insurance company |
| Vacancy, lease-up or renovation is ahead | Bank or bridge lender, since CMBS and life lenders usually size on current income |
| Your own business will occupy most of the building | SBA 504 or 7(a) |
SBA SOP 50 10 8.1, effective October 1, 2026, says that for an existing building the Applicant "must occupy 51% of the Rentable Property and may lease to a third party up to 49%," with 60% for new construction (SBA SOP 50 10). Businesses owned by developers and landlords that don't occupy the property are ineligible, apart from eligible passive company structures. A pure investor strip center doesn't qualify, but a retailer occupying most of its own center might, as our SBA 504 vs conventional commercial mortgage comparison explains.
Ask every lender for its minimum loan size, carve-out list, prepayment formula with a worked number, servicer and assumption terms. Through EQ Funding, one application for commercial real estate financing reaches lenders that compete for the deal, so you can compare written terms side by side. Lenders decide after reviewing the property and your finances, and approval and terms vary by lender.