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When you need a large sum of money to invest in property or equipment for your business, you will likely need to find lenders who offer commercial mortgages.
This may apply to you if you want to buy freehold commercial, office or industrial property for your business activities or as an investment. Alternatively, you may be looking to raise funds to finance the development of industrial or commercial spaces. Commercial mortgages can also help you refinance existing loans on commercial properties for better rates.
What are commercial mortgage rates?
When deciding to apply for a commercial mortgage, the first step is to compile a shortlist of lenders. You can then compare the commercial mortgage rates offered by different lenders to identify your best option. Just like with a residential mortgage, you can borrow up to 80% of the value of the property, depending on your situation and your request.
If you are offering a commercial or residential property as collateral, you may be able to negotiate a lower variable interest rate. Interest on fixed rate loans with commercial property as collateral often depends on the number of years you need the loan.
If you are borrowing from a lender or private investor, you may have to pay a higher interest rate for a variable rate loan. Some private lenders may be willing to finance up to 85% of the value of the property.
It is more common for commercial mortgages to offer variable rate loans. You will often find that the average interest rates for commercial mortgages tend to be higher than those charged for home loans.
Most bank or non-bank lenders offer commercial mortgages for terms ranging from three to 25 years. Many lenders may require a higher deposit for commercial mortgages, 30 percent, instead of the 20 percent that is generally acceptable for residential loans. This is because commercial property is sometimes seen as riskier from the lender’s point of view.
It’s worth getting quotes from different lenders, including different ways to structure your loan, to find the best commercial mortgage rates for your needs.
What are the conditions for obtaining a commercial mortgage?
When you approach a lender for your commercial mortgage, you will need to demonstrate that your business will be able to handle regular repayments. The lender will want to see tax returns and bank statements.
You will also need to have the funds for the deposit, which can be between 20 and 30 percent of the loan amount. You may also need to offer a residential or commercial property that you own as collateral for the loan.
Based on the information you submit to the lender, the lender will assess the risk of lending to you, which will affect the commercial loan mortgage rates you can get. If you can get the lender to believe there is low risk in your loan, you should be able to get better mortgage interest rates for business.
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