Commercial Mortgage Rates

The interest rates on commercial mortgages are usually higher than the rates charged on residential mortgages.

Commercial mortgage rates are higher because lenders consider commercial mortgages riskier than residential mortgages. In the world of finance interest rates are determined by the risk that a lender takes on a loan. The more risk a lender takes, the higher the interest rate the lender will charge.

This is why new businesses, speculative businesses and businesses with bad credit rates pay higher commercial mortgage interest rates. Lenders consider these businesses to be bigger risks so they charge them higher interest rates.

It is also why established businesses, more traditional businesses and businesses with good credit have lower mortgage interest rates. Lenders consider those businesses to be less risky so they get a lower interest rate.

How Commercial Mortgage Rates Are Determined

Commercial mortgage interest rates are based on the rates of interest that lenders pay when they borrow money to underwrite mortgages with. Lenders get their money from a number of mortgage markets including the Federal Reserve, the US treasury, and the LIBOR (London Interbank Offset Rate). Lenders purchase securities on these markets which are used to back mortgages.

The rate of interest a commercial borrower pays is usually the interest rate the lender paid for the money plus an added charge usually 2.5%. This added charge covers the mortgage provider’s costs and gives the lender a profit on the mortgage.

Types of Commercial Mortgage Interest Rates

The cheapest commercial mortgage interest rates are those based on the prime mortgage rate. This the mortgage rate for traditional 30 and 40 year mortgages issued by banks. These mortgages are usually issued to established businesses with good credit rates.

More speculative businesses and new businesses will have to pay higher interest rates. The highest interest rate is the LIBOR which is issued on the riskiest mortgages. This is the interest rate charged on high interest mortgages issued by third party and online mortgage providers.

The highest interest rates are charged on floating interest rate mortgages. These are mortgages in which the interest rate changes as the market changes. Such mortgages are usually only issued to businesses considered the highest risks.

How to Shop for Interest Rates

A business owner can shop for the best interest rate by going online and seeing what interest rates are offered on what mortgages. Most commercial mortgage websites have lists of the products offered and the interest rates charged on them.

By going to several of these websites a business owner can get a pretty good idea of the interest rates that they will pay on their mortgage. This way a business owner can know what interest rate they should be paying when they start applying for a mortgage. 

It is possible for a business owner to get the best interest rate available if they are willing to shop around for a mortgage.