It’s important to understand what commercial mortgage is before you could understand the rates involved.
A commercial mortgage is a loan that any person could use to purchase a commercial property or to refinance one. A commercial mortgage can be used to purchase a wide range of things, with the only thing in common being the purpose of commercial usage.
So, in context, any building or land that will serve a business can be purchased with these types of loans. You can find very valuable information by visiting assetsamerica.com.
Different Types of Commercial Mortgages
There are two types of these loans, commercial investment, and owner-occupied property type.
The former is a loan that is used to purchase a commercial property and used as an investment, while the latter is used when the borrower of the loan wants to purchase a property and make it his business.
To summarize, the former is for investment, and the latter is for opening business offices.
Now that we’ve distinguished the basics of these types of loans, let’s talk a little more about the rates.
Understanding the Rates
Rates are what the burrower pays on top of the loan when taking it. It is a way for the lender to make profits on each loan, and this type of operating has worked for hundreds of years. Click here, if you want to calculate your mortgage.
All financial institutions that lend money use this model to cover for the operating costs, and each loan considers the following factors when determining the amount:
· Loan Size
The first factor is to determine the size of the loan. The bigger the loan the smaller the amount to pay and the opposite goes for smaller loans.
· The Tenant and Lease
The length of the lease on the loan, as well as the quality of the person who is occupying the property (the tenant), plays an important factor in determining the rates. This is especially the case for investment properties.
· The Type
The lender, and the type of lender, plays an equally important factor that will determine the charges you’ll be paying. Namely, some lenders offer smaller rates and some offer higher rates for the same loan. This is why it’s very important to do your research on the lender before making the decision of getting a commercial mortgage.
LTV is an acronym for loan to value ratio and it is a number that specifies how much value the lender will have by giving you this loan.
· Credit History
It goes without saying that your credit history plays an important role in the ability to obtain this loan in the first place. Those with a poor credit history will have a harder time obtaining the loan, not to mention that the lender will increase the rates since they will be flagged as a “riskier” investment.
· Financial Strength
Since commercial mortgages are effectively taken by businesses, the financial institution will also take a look at the businesses’ financial strength before determining the rates.
These are the factors that go into account when a lender determines the charges. For more first-hand information, and lenders where you can apply and get a quote, make sure to visit koloans.
Businesses that are generally marked as safe, meaning well established and financially sound, will be given lower rates due to the safety factor. This means that these businesses can pay off their loan in time, so the financial institution faces a low-risk return.
If you’re obtaining the commercial mortgage to buy property for the purpose of opening your business offices, then you’ll also be given a lower rate instead of using it as a financial investment.
In most states in the US, determining the charges for a commercial mortgage takes into account various other factors. Some of the most important factors include the loan product and the amortization.
Types of Rates
The two types of reverse mortgage rates (click here to learn more) that are associated with these loans are fixed and variable.
The former is given to businesses starting from two years and paying up until the length of the loan. Fixed charges are generally higher than variable rates.
Variable rates, on the other hand, are generally given based on other major rates in the country. Variable rates, unlike fixed rates, have a set fixed rate because they use sources from major institutions.
As with anything in life, there are fees involved whenever you take a commercial mortgage. Some of the fees are:
· Lender Arrangement Fee
A lender arrangement fee is a flat fee that is charged every time a business arranges for a commercial mortgage. To make things more simple and convenient, this fee is usually added on top of the loan. This means that you don’t have to pay out of your pocket for it, and will be added to the overall repayment of the loan. This fee can vary depending on many factors but usually makes up around 1.5% of the total loan.
· Valuation Fee
Whenever a business wants to take a loan for a property, the lender will send an evaluator to evaluate the property and determine its worth.
Well, as you might expect it, you have to pay a fee for it and different lenders will give you different time frames for paying it.
· Broker Fee
The fees don’t stop there and this is yet another fee that all businesses have to pay when arranging a commercial mortgage.
The fee in question is a broker’s fee and it usually accounts for 1% of the value of the loan. This fee covers the broker that arranges the loan.
· Legal Fees
Legal fees vary from State to State, and from country to country. They are closely tied to the laws in each state/country and tend to be much higher than those of residential mortgages.
The borrower has to pay the legal fees, and the borrower has to pay for the legal representation during the arranging of the commercial mortgage. Both are required to be paid; doing otherwise is illegal and can result in losing the commercial mortgage.
These are some of the fees associated with these loans, but there are also other things that the burrow has to have in mind. Some of those things are the terms of the commercial mortgage, the reason why the charges can vary, and what LTV you’ll be able to achieve.