The average interest rate on commercial mortgages is around 2.2% to 18%. The actual interest rate you secure depends on the type of loan you choose, your eligibility as a borrower, and the type of building or project you are lending. To make it easier to compare interest rates, we considered more than 12 types of loans and real estate and summarized the average interest rates for commercial mortgages.
Average Commercial Real Estate Loan Rate by Loan Type
1.Average commercial real estate loan rates by loan type
2.Average commercial real estate loan rates for investment properties
3.What to consider when shopping for a commercial mortgage
Interest rates can be as low as 2.231%, depending on the type of loan you choose. Government-sponsored loans such as SBA loans from the Small Business Agency and USDA loans from the Department of Agriculture and traditional commercial mortgages generally offer the most competitive interest rates and the highest loan-to-value (LTV) ratios. To do.
1.Average commercial real estate loan rates by loan type
The traditional commercial mortgage application process requires a lot of time and documentation to complete and is most likely to qualify for a prime or near prime borrower. If your credit score is low, your business finance is not good, or you need to refurbish your loaned real estate, pay higher interest rates and more money to get a traditional commercial mortgage. Need to be taken down. In this situation, you should consider a commercial real estate loan company that specializes in subprime mortgages, or look for a bridge loan or hard money loan.
2.Average commercial real estate loan rates for investment properties
Interest rates on investment real estate loans can be as low as 3.77%. With an investment real estate loan, you can buy real estate, remodel it, and resell it for profit. However, the LTV ratio for these loans is lower than for commercial mortgages owned by your home. In other words, you need to withdraw more money. The LTV ratio for these types of loans averages between 66% and 73%. Therefore, if you buy a $ 1 million building, the lender may only offer a $ 730,000 loan. That means you have to drop $ 270,000.
Local banks, credit unions, and commercial mortgage lenders are the best options for getting an investment real estate loan. A FICO score of at least 620 increases your chances of being approved. To qualify, you also need a solid track record in managing investment property, a strong investment pitch, and sufficient cash for a down payment. A considerable down payment may help you get the most favorable rates and conditions. Shop for the best deal and be ready to negotiate the terms of your loan agreement. Borrowers are advised to consider local banks and mortgage lenders rather than national banks, as these institutions are very interested in investing in the community.
3.What to consider when shopping for a commercial mortgage
You’ll pay higher interest rates for building rather than purchasing an investment property — rates currently range from 6.74% to 8.15% — because constructing a new building is a riskier endeavor than purchasing a finished one, so banks charge higher interest rates to compensate for this risk. However, the LTV ratio on a construction loan is generally higher than a standard investment property loan so you won’t have to put as much cash down. Construction loans, sometimes referred to as "interim financing," also have shorter maturities than investment property loans since you’re expected to pay back the loan once the building is complete. Maturities for construction loans typically range from 18 to 26 months. Many construction loans are not amortized and thus require interest-only payments with a final balloon payment at the end of the term.
Things to consider when buying a commercial mortgage
When buying a commercial mortgage, follow these steps to ensure you get the right loan.
1. Shop
Buying or building commercial real estate is a big job for your business or for yourself as an investor. Get ready to shop and negotiate for the best deal possible. We recommend starting with a financial institution that has a good relationship. If you don't have a particular financial institution in mind, start with a local bank, a local bank, a credit union, or a mortgage lender. Because they know more about the local market than the national lenders.
2. Consider a government-sponsored loan
When choosing a loan type, small business owners should consider government-sponsored loan programs such as SBA504 loans and USDA business loans. These loans are more eligible than traditional commercial mortgage loans while maintaining competitive interest rates. However, these programs are usually only available to borrowers who buy or build real estate owned by their home. For investment real estate loans, bank or commercial mortgage lenders are the best option. Unqualified borrowers or borrowers purchasing properties that need refurbishment should consider alternative options such as bridge loans and hard money loans. Please note that you may pay a higher interest rate or a higher down payment for these loans.
3. Read the contract carefully
Be sure to read the contract carefully when you offer a loan. Some lenders require a personal warranty for each business owner, or you require you to pay from your pocket for building inspections and environmental reporting. The contract may also contain certain provisions that could invalidate the entire contract if breached. Understand all the details of the contract and take less risk as a borrower. Lenders usually expect some offers back and forth, so don't be afraid to negotiate, especially if you have multiple offers. Check your contract with a lawyer or legal counsel. A lawyer or legal counsel can help you better understand and negotiate the details of the contract.