Commercial Financing
A Commercial Mortgage is a financial arrangement where a loan is secured against commercial real estate, distinguishing it from residential mortgages. The borrower is typically a company or business entity, such as a partnership, limited company, or corporation. The complexity of assessing credit history increases in this context, making commercial mortgage rates notably higher than residential rates due to heightened risk.
Distinct types of properties fall under the category of commercial properties, including development land, industrial spaces, offices, retail establishments, and multi-family residential. These also include condominium units regardless of their size; if they’re zoned commercial, they require Commercial Financing.
Unlike residential mortgages, which usually take around 90 days to close, commercial mortgages have a significantly longer processing time, ranging from 60 days to a year.
Diverse types of commercial mortgages exist, each with its maximum loan-to-value ratio:
Comparing commercial mortgage rates can be challenging due to unadvertised lending criteria and varying terms and conditions. Engaging an experienced mortgage broker familiar with the commercial landscape, like Mathew at HuronMortgages.ca, who has over 20 years of lending experience, is recommended. A commercial mortgage broker specializes in asset classes above and connects clients with lenders specializing in the required area.
Qualifications
To qualify for a commercial mortgage, specific criteria is required including;
The type of business and property, a substantial down payment ranging from 20-35%, and a liquid net worth (not in equity) is also a crucial factor.
Commercial property insurance is more intricate than residential insurance, with institutions like CMHC typically not insuring pure commercial properties. However, they may provide insurance for mixed residential-commercial properties with a down payment as low as 15%. Commercial mortgage insurance is essential for lenders seeking security, considering the increased risk of business-related challenges leading to defaults.
When utilizing a mortgage broker to secure competitive rates, clients should be aware of broker fees, which can range from the high four to high five digits depending on the deal’s size and complexity.
Benefits of Commercial Finance:
Drawbacks of Commercial Finance:
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