Interest Rates: What to Expect With Your Commercial Mortgage Up to $5M
Commercial mortgage rates vary by property type, location, tenant mix, LTV, loan term and amortization period, and many other factors (including complex concerns like debt service coverage and deal sponsorship). Each of these are carefully considered in the underwriting of each individual loan.
Rates also vary widely depending on type of lender: Government lenders and banks typically offer the lowest but have the most stringent underwriting procedures and guidelines. Rates can also go up or down depending on how the lender sources their capital: Private lenders (which are supplying their own capital) tend to offer higher rates, but have significantly more flexibility in who they make loans to.
All commercial rates are based on indices (as we’ll explain below) but are also uniquely tailored to the needs, concerns, and objectives of individual commercial borrowers.
Once you submit your mortgage needs to InvestmentProperty.loans, our experts will help connect you to a mortgage lender with the right interest rate to meet your expectations. The lenders in our network specialize in analyzing property financials and calculating how to maximize returns for borrowers.
For “A” quality borrowers, interest rates often begin at around 4.5%.
For variable rate loans, rates are typically expressed as a base rate plus a spread over the index rate.
The base rate plus the spread indicates the starting rate for the loan. For example, a loan priced as “Prime +1%,” when Prime – a type of index rate – is at 3.25%, would have a starting rated of 4.25%. Every time the Prime rate index moves up or down, the rate on the loan will also go up or down by the corresponding amount. Many loans also have rate floors and rate caps, as we’ll discuss below.
For fixed rate loans, rates are typically expressed simply as a percentage – for example, 5.25%. The lender will have settled on this rate based on their analysis of the index and spread, but the rate will not change during the duration of the Loan Term.